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UC-NRLF 


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UNIVERSITY  OF  ILLINOIS 


STATE  BANKS  OF  ISSUE  IN  ILLINOIS 


c 


THE  HENRY  H.  HARRIS  BANKING  PRIZE  ESSAY 


-BY- 


CHARLES  HUNTER  GARNETT,  A.  M. 


PUBLISHED  BY  THE  UNIVERSITY 

1898 


UNIVERSITY  OF  ILLINOIS 


STATE  BANKS  OF  ISSUE  IN  ILLINOIS 


I J  B  F?  A 


THE  HENRY  H.  HARRIS  BANKING  PRIZE  ESSAY 


—BY- 


CHARLES  HUNTER  GARNETT,  A.  M. 


PUBLISHED  BY  THE  UNIVERSITY 


PREFATORY  NOTE. 


This  essay  was  written  in  competition  for  a  prize  of  one 
hundred  dollars,  offered  in  1896  by  Mr.  Henry  H.  Harris,  of 
the  First  National  Bank,  of  Champaign.  Three  essays 
were  submitted  in  competition.  Professor  William  A. 
Scott  of  the  University  of  Wisconsin,  Professor  John  H. 
Gray  of  Northwestern  University,  and  Hon.  J.  J.  P. 
Odell,  then  president  of  the  Union  National  Bank  of  Chicago, 
were  requested  to  read  the  essays  and  give  an  opinion,  first 
as  to  whether  any  one  of  them  was  sufficiently  meritorious 
to  deserve  the  prize,  and  if  so  which  one;  and  second,  as  to 
whether  the  successful  essay  was  of  sufficient  interest  and 
value  to  put  in  print.  These  gentlemen  kindly  consented 
to  act  as  judges  and  unanimously  agreed  that  an  affirma- 
'tive  answer  could  be  given  to  both  questions  in  the  case  of 
the  essay  of  Mr.  Charles  Hunter  Garnett,  A.  M.  The  essay 
has  been  revised  somewhat,  and  cut  down  for  publication. 
I  believe  that  a  complete  history  of  this  important  subject 
has  not  yet  appeared.  This  essay  throws  some  light  on  an 
interesting  portion  of  our  state  history  and  I  take  pleasure, 
therefore,  in  sending  it  forth  as  a  contribution  thereto 
by  one  of  the  students  of  my  department.  There 
is  much  valuable  material  for  a  history  of  Illinois 
not  yet  worked  up.  I  trust  that  from  time  to  time  we  shall 
be  able  to  take  up  one  topic  or  another  relating  to  this  his- 
tory. Certainly  that  is  a  proper  field  of  activity  for  the 
state  University. 

The  generosity  of  Mr.  Harris  suggests  a  way  by  which 
friends  of  the  University^  may  be  very  helpful  to  her. 

«  V  i  :•"":  •..*  DAVID  KINXBY, 

Dean  of  the  College  of.  literature  'and  Arts,  and  Professor 

of 


STATE  BANKS  OF  ISSUE  IN  ILLINOIS 


FIRST  PERIOD  :  BEFORE  1819. 


Before  the  war  of  1812  there  was  but  little  money  in 
Illinois.  The  French  communistic  settlements  in  the  terri- 
tory did  not  need  much,  for  they  supplied  their  own  wants 
and  had  but  little  intercourse  with  the  outside  world.  Among 
themselves  the  skins  of  the  deer  and  'coon  passed  current. 

At  the  close  of  the  war,  emigrants  from  the  states  be- 
gan to  come  in,  and  brought  with  them  both  money  and 
goods.  At  the  same  time  money  which  had  been  paid  to 
the  militia  during-  the  war  began  to  find  its  way  among-  the 
settlers  and  fostered  the  beginnings  of  commerce.  Most  of 
the  new  settlers  came  from  Kentucky  and  Ohio,  and  settled 
in  the  southern  part  of  the  territory.  They  believed  that 
the  only  thing-  needed  for  the  development  of  the  community 
into  which  they  had  come,  was  ''capital,"  and  that  this 
could  be  most  conveniently  supplied  by  means  of  banks. 

Accordingly  a  bank  was  started  at  Shawneetown  as 
early  as  1813,  when  the  population  of  the  territory  was  but 
fifteen  hundred.  It  was  incorporated  in  1816  as  the  ''Presi- 
dent, Directors  and  Company  of  the  Bank  of  Illinois  at 
Shawneetown"  and  began  business  on  January  1st,  1817, 
with  a  charter  extending  for  twenty  years.  It  was  to  have 
a  capital  stock  not  to  exceed  $300,000,  divided  into  shares  of 
$100  each,  one-third  of  which  might  be  subscribed  by  the 
territory.  As  soon  as  fifty  thousand  dollars  were  subscribed 
and  ten  thousand  were  paid  in,  the  bank  might  begin  busi- 
ness. Ten  dollars  on  each  share  were  to  be  paid  in  gold  or 
silver  at  the  time  of  subscription,  and  the  remainder  was  to 
be  paid  in  notes  of  other  banks,  in  such  installments  as  the 
bank  directors  might  determine,  save  that  no  installment 
should  exceed  twenty-five  per  cent,  or  be  demanded  without 
sixty  days  notice.  The  affairs  of  the  bank  were  to  be  man- 

239379  3 


PREFATORY  NOTE. 


This  essay  was  written  in  competition  for  a  prize  of  one 
hundred  dollars,  offered  in  1896  by  Mr.  Henry  H.  Harris,  of 
the  First  National  Bank,  of  Champaign.  Three  essays 
were  submitted  in  competition.  Professor  William  A. 
Scott  of  the  University  of  Wisconsin,  Professor  John  H. 
Gray  of  Northwestern  University,  and  Hon.  J.  J.  P. 
Odell,  then  president  of  the  Union  National  Bank  of  Chicago, 
were  requested  to  read  the  essays  and  give  an  opinion,  first 
as  to  whether  any  one  of  them  was  sufficiently  meritorious 
to  deserve  the  prize,  and  if  so  which  one;  and  second,  as  to 
whether  the  successful  essay  was  of  sufficient  interest  and 
value  to  put  in  print.  These  gentlemen  kindly  consented 
to  act  as  judges  and  unanimously  agreed  that  an  affirma- 
tive answer  could  be  given  to  both  questions  in  the  case  of 
the  essay  of  Mr.  Charles  Hunter  Garnett,  A.  M.  The  essay 
has  been  revised  somewhat,  and  cut  down  for  publication. 
I  believe  that  a  complete  history  of  this  important  subject 
has  not  yet  appeared.  This  essay  throws  some  light  on  an 
interesting  portion  of  our  state  history  and  I  take  pleasure, 
therefore,  in  sending  it  forth  as  a  contribution  thereto 
by  one  of  the  students  of  my  department.  There 
is  much  valuable  material  for  a  history  of  Illinois 
not  yet  worked  up.  I  trust  that  from  time  to  time  we  shall 
be  able  to  take  up  one  topic  or  another  relating  to  this  his- 
tory. Certainly  that  is  a  proper  field  of  activity  for  the 
state  University. 

The  generosity  of  Mr.  Harris  suggests  a  way  by  which 
friends  of  the  University^may  be;  very  helpful  to  her. 

.  V"  i  :•"":  :..*  DAVID  KINI^Y, 

Dean  of  the  College  gf.  Literature- 'and  Arts,  and  Professor 

of  BcGf&fcftcfct*'  •**••'  *::..:•*••••••' 


STATE  BANKS  OF  ISSUE  IN  ILLINOIS 


FIRST  PERIOD  :  BEFORE  1819. 


Before  the  war  of  1812  there  was  but  little  money  in 
Illinois.  The  French  communistic  settlements  in  the  terri- 
tory did  not  need  much,  for  they  supplied  their  own  wants 
and  had  but  little  intercourse  with  the  outside  world.  Among 
themselves  the  skins  of  the  deer  and  'coon  passed  current. 

At  the  close  of  the  war,  emigrants  from  the  states  be- 
gan to  come  in,  and  brought  with  them  both  money  and 
goods.  At  the  same  time  money  which  had  been  paid  to 
the  militia  during  the  war  began  to  find  its  way  among  the 
settlers  and  fostered  the  beginnings  of  commerce.  Most  of 
the  new  settlers  came  from  Kentucky  and  Ohio,  and  settled 
in  the  southern  part  of  the  territory.  They  believed  that 
the  only  thing  needed  for  the  development  of  the  community 
into  which  they  had  come,  was  ' "capital,"  and  that  this 
could  be  most  conveniently  supplied  by  means  of  banks. 

Accordingly  a  bank  was  started  at  Shawneetown  as 
early  as  1813,  when  the  population  of  the  territory  was  but 
fifteen  hundred.  It  was  incorporated  in  1816  as  the  "Presi- 
dent, Directors  and  Company  of  the  Bank  of  Illinois  at 
Shawneetown"  and  began  business  on  January  1st,  1817, 
with  a  charter  extending  for  twenty  years.  It  was  to  have 
a  capital  stock  not  to  exceed  $300,000,  divided  into  shares  of 
$100  each,  one-third  of  which  might  be  subscribed  by  the 
territory.  As  soon  as  fifty  thousand  dollars  were  subscribed 
and  ten  thousand  were  paid  in,  the  bank  might  begin  busi- 
ness. Ten  dollars  on  each  share  were  to  be  paid  in  gold  or 
silver  at  the  time  of  subscription,  and  the  remainder  was  to 
be  paid  in  notes  of  other  banks,  in  such  installments  as  the 
bank  directors  might  determine,  save  that  no  installment 
should  exceed  twenty-five  per  cent,  or  be  demanded  without 
sixty  days  notice.  The  affairs  of  the  bank  were  to  be  man- 

239379  3 


aged  by  a  board  of  twelve  directors  elected  annually  by  the 
stockholders,  each  stockholder  being  allowed  votes  accord- 
ing- to  the  number  of  shares  held  by  him,  but  with  the  ratio 
of  votes  to  shares  decreasing-  as  the  number  of  shares  in- 
creased. This  provision  was  intended  for  the  benefit  of  the 
small  stockholders  and  distributed  the  votes  as  follows:  for 
one  share  and  not  more  than  two,  one  vote;  for  every  two 
shares  above  two  and  not  exceeding-  ten,  one  vote;  for  every 
four  shares  above  ten  and  not  exceeding  thirty,  one  vote; 
for  every  six  shares  above  thirty  and  not  exceeding  sixty, 
one  vote;  for  every  eight  shares  above  sixty  and  not  exceed- 
ing one  hundred,  one  vote;  and  for  every  ten  shares  above 
one  hundred,  one  vote.  The  governor  of  the  territory 
was  empowered  to  act  as  agent  for  the  legislature  and  to 
cast  the  votes  to  which  the  territory  should  be  entitled.  No 
one  but  a  bona  fide  stockholder,  who  was  a  resident  citizen 
of  the  territory,  could  be  a  director.  Any  number  of  stock- 
holders not  less  than  fifteen,  who  owned  not  less  than  fifty 
shares,  could  at  any  time  appoint  three  of  their  number 
a  committee  to  examine  the  condition  of  the  bank  and  the 
manner  in  which  its  affairs  were  conducted.  The  bank 
could  not  lawfully  hold  or  deal  in  any  property  other  than 
gold,  silver  and  bills,  except  what  was  necessary  for  busi- 
ness accommodations  or  might  be  conveyed  to  it  in  the 
satisfaction  of  debts.  Its  liabilities,  exclusive  of  deposits, 
were  never  to  exceed  twice  the  amount  of  its  paid  up  capital 
stock.  The  maximum  rate  of  discount  was  fixed  at  six  per 
cent,  per  annum.  Half  yearly  dividends  were  to  be  declared 
of  so  much  of  the  profits  of  the  bank  as  should  be  deemed 
expedient,  and  once  in  three  years  the  directors  were  to  lay 
before  a  general  meeting  of  the  stockholders  an  exact  state- 
ment of  the  condition  of  the  bank.  Refusal  to  redeem  its 
notes  in  gfold  and  silver  on  demand,  or  delay  in  such  redemp- 
tion, was  prohibited  under  a  penalty  of  twelve  per  cent,  per 
annum  on  the  notes  defaulted,  from  the  time  of  the  de- 
mand until  the  obligations  were  paid. 

It  is  not  necessary  to  criticise  this  charter.  It  was 
better  than  many  of  its  time.  Its  main  defects  were  the 
limitation  of  the  rate  of  interest  to  six  per  cent,  and  the 
permission  to  begin  business  on  so  small  a  capital  as  $10,000. 


On  January  9,  1818,  the  acts  incorporating1  the  Bank  of 
Edwardsville,  the  Bank  of  Kaskaskia,  and  the  City  and 
Bank  of  Cairo  were  approved  by  the  governor. 

The  Edwardsville  bank  was  to  have  a  capital  stock  of 
$300,000,  one  third  to  be  subscribed  by  the  territory.  In 
all  essential  features  its  organization  was  to  be  the  same  as 
that  of  the  Shawneetown  bank. 

The  Kaskaskia  bank  was  to  have  a  capital  stock  of 
$500,000,  and  all  payments  of  subscriptions  were  to  be  in 
gold  and  silver.  No  provision  was  made  allowing-  the  ter- 
ritory to  subscribe  for  stock.  In  other  respects  this  bank 
was  to  be  similar  to  the  one  at  Shawneetown.  It  is  of  little 
consequence  as  it  never  transacted  any  business.  Doubtless 
the  requirement  that  subscriptions  for  the  stock  should  be 
paid  in  gold  and  silver  kept  subscribers  away,  for  they 
would  not  care  to  invest  in  such  stock  when  the  stock  of  the 
other  banks  was  open  for  subscription  and  required 
only  ten  per  cent,  of  its  value  to  be  paid  in  gold  and  silver, 
while  the  remainder  might  be  paid  in  the  plentiful  notes  of 
the  Ohio  and  Kentucky  banks. 

The  scheme  for  the  organization  of  the  City  and  Bank 
of  Cairo  was  unique.  It  illustrates  that  sanguine  and 
confident  western  spirit  which  has  produced  so  many  Upto- 
pias,  and  has  given  birth  to  so  many  hopeful  plans  for  the 
development  of  future  great  and  populous  cities.  The  pre- 
amble of  the  act  incorporating  the  city  and  bank  sets  forth 
in  glowing  terms  the  great  natural  advantages  for  a  metro- 
polis at  the  junction  of  the  Ohio  and  the  Mississippi  rivers. 
By  the  provisions  of  the  act  the  proprietors  of  the  land  on 
which  the  proposed  city  was  to  be  built  were  to  constitute 
a  banking  corporation,  to  exist  for  thirty  years  under  the 
name  of  the  "President,  Directors  and  Company  of  the 
Bank  of  Cairo."  The  city  was  to  be  laid  off  into  two  thous- 
and lots,  valued  at  one  hundred  and  fifty  dollars  each,  and 
no  person  could  subscribe  for  more  than  ten  lots.  When  a 
lot  was  sold  one  third  of  the  purchase  money  was  credited 
to  the  city  improvement  fund,  and  the  remainder  to  the 
stock  of  the  bank.  This  latter  sum  was  to  be  divided 
into  two  shares  of  fifty  dollars  each,  one  to  go  to  the  pur- 
chaser, and  one  to  the  original  owner  of  the  land.  Every 


purchaser  was  to  make  a  deposit  of  one  third  of  the  pur- 
chase price  of  the  lots  to  the  credit  of  the  Bank  of  Cairo  in 
the  Bank  of  the  United  States,  in  one  of  its  branches,  or  in 
any  convenient  chartered  bank.  The  rest  was  to  be  paid  with- 
in six  months.  As  soon  as  five  hundred  lots  had  been  taken, 
thirteen  directors  were  to  be  elected  by  the  purchasers,  and 
these  directors  were  to  appoint  commissioners  to  carry  out 
the  city  improvements.  They  might  also  increase  the 
capital  stock  of  the  bank,  not  to  exceed  $500,000.  The 
debts  of  the  corporation  were  never  at  any  time  to  exceed 
twice  the  amount  of  the  paid  up  capital.  In  other  re- 
spects the  bank  was  similar  to  those  organized  at  Edwards- 
ville  and  Shawneetown. 

Both  the  city  and  the  bank  thus  elaborately  planned 
existed  for  several  years  only  on  paper.  No  part  of  the 
scheme  pertaining-  to  the  city  was  ever  carried  out,  though 
in  the  course  of  time  the  city  of  Cairo  appeared.  The  pro- 
moters of  the  scheme  even  failed  to  pay  for  the  land  and  it 
was  finally  forfeited  to  the  government. 

"The  Cairo  Bank  had  a  somewhat  mythical  existence 
until  1836,  at  which  time  it  was  brought  into  actual  life  for 
speculative  purposes,  issued  its  full  quota  of  paper  money, 
flourished  for  a  time,  and  finally  succumbed  to  the  rough 
financial  storms  of  the  times."*  The  Kdwardsville  and 
Shawneetown  banks  became  reputable  institutions  and  did 
business  for  several  years.  Through  the  efforts  of  Ninian 
Edwards,  then  Congressman  from  Illinois,  both  of  them  be- 
came depositories  of  the  public  money  received  from  the 
sale  of  public  lands  within  the  state.  These  funds  they 
applied  to  their  own  use.  In  1820,  amid  the  general  crash 
of  banking  institutions  all  over  the  Union,  following  the 
period  of  inflation  and  speculation  which  had  culminated 
in  the  crisis  of  1819,  the  Edwardsville  bank  failed.  The 
United  States  afterwards  obtained  a  judgment  against  it 
for  $54,000  the  amount  of  public  money  held  by  it  at  the 
time  of  failure,  but  no  part  of  this  sum  was  ever  collected. 
The  loss  to  individuals,  depositors  and  stockholders  is  not 
known. 

The  Shawneetown  bank  had  better  success,  for  it  was 

*A.  T.  Andreas'  History  of  Cnicago,  p.  524. 


more  skillfully  managed.  "By  the  aid  of  government  de- 
posits, [it]  acquired  an  extensive  credit;  issued  and  re- 
deemed its  bills  for  several  years,  and  paid  specie  as  late  as 
August,  1821 — a  considerable  time  after  the  Kentucky 
banks  had  failed."*  It  was  finally  forced  to  close  in  1823, 
but  managed  to  pay  up  or  compound  both  its  public  and 
private  debts  and  thus  save  its  charter.  For  the  next  dozen 
years  it  remained  inactive,  appearing  again,  as  we  shall 
see,  in  1835. t 

The  condition  of  the  Illinois  banks  in  1819  is  shown  by 
the  following  table: — 

RESOURCES.  LIABILITIES. 

Loans  and  discounts $206,694.32       Capital $140,910.00 

Specie 74,715.51       Circulation 52,021.00 

Stocks   and    miscellan- 
eous effects 6,614.00       Public  deposits 119,036.92 

Due  from  other  banks....    59,332.18       Private  deposits 32,568.60 

Real  Estate 175.00       Undivided  profits 2,994.49 

Total $347,531.01  Total $347,531.01 

These  banks  had  been,  perhaps,  as  successful  and  use- 
ful to  the  community  as  any  banking  institutions  could 
have  been  at  that  time.  The  state  had  in  fact  very  little 
need  of  banks  as  yet.  Its  population  at  the  time  the 
Edwardsville  and  Kaskaskia  banks  were  chartered  was  only 
thirty  thousand.  The  capital  necessary  for  banking  could 
not  be  found  at  home.  There  existed  no  commerce  worthy 
the  name,  no  enterprises  of  importance,  no  developed  system 
of  business.  Hence  there  was  but  little  occasion  for  the 
exercise  of  the  banking  functions  proper.  The  business 
consisted  almost  wholly  in  issuing  notes.  These  notes, 
added  to  those  sent  into  the  state  from  banks  in  Ohio, 
Kentucky  and  Missouri,  produced  local  inflation  and  pro- 
moted speculation.  Houses  were  built  and  lands  purchased 
which  were  in  no  wise  needed,  but  which  the  owners 
expected  soon  to  sell  to  immigrants  at  a  handsome  profit. 
Every  one  was  in  a  "rage  for  speculating  inlands  and  town 
lots,"  a  proceeding  which  was  called  "developing  the  infant 
resources  of  a  new  country."  Public  lands  were  then  sell- 
ing at  two  dollars  an  acre,  one  fourth  cash,  the  remainder 
on  five  years'  time.  Every  one  who  had  or  could  get  eighty 
dollars  bought  a  quarter  section  of  land,  expecting  to  sell 

*Brown's  History  of  Illinois,  p,  429. 
tSee  p.  25. 


8 

it  again  at  a  profit  before  the  remaining-  payments  fell  due. 
Almost  all  the  bank  notes  in  circulation  were  good  at  the 
land  offices.  The  abundance  of  money  also  made  credit 
easy  to  get.  Merchants  imported  goods  either  from  New 
Orleans  by  way  of  the  Mississippi  or  from  Pittsburg  by 
way  of  the  Ohio,  and  the  people  bought  liberally  from 
the  stores  on  credit,  confidently  expecting  that  payment 
would  be  very  easy  as  soon  as  the  country  became  more 
thickly  settled.  Everybody  hoped  to  get  rich  out  of  the 
future  immigrant.  "The  speculator  was  to  sell  him  houses 
and  lands,  and  the  farmer  was  to  sell  him  everything  he 
wanted  to  begin  with  and  to  live  upon  until  he  could  supply 
himself.  Towns  were  laid  out  all  over  the  country  and  lots 
were  purchased  by  every  one  on  credit;  the  town  maker  re- 
ceived no  money  for  his  lots  but  he  received  notes  of  hand 
which  he  considered  to  be  as  good  as  cash ;  and  he  lived  and 
embarked  in  other  ventures  as  if  they  had  been  cash  in 
truth.  In  this  mode  by  the  year  1820,  nearly  the  whole 
people  were  irrecoverably  involved  in  debt."* 

The  rage  for  bank  speculation  was  not,  however,  confined 
to  private  individuals.  The  state  also  joined  in  the  com- 
petition. The  constitution  of  1818  declared:  "There  shall 
be  no  other  banks  or  monied  institutions  in  this  State  than 
those  already  provided  by  law,  except  a  State  bank  and  its 
branches,  which  may  be  established  and  regulated  by  the 
general  assembly  of  the  State  as  they  may  think  proper." 
In  accordance  with  this  provision  the  legislature,  feel- 
ing some  premonitory  tremblings  of  the  coming  convulsion, 
and  wishing  to  provide  against  disaster,  incorporated, 
March  22,  1819,  the  "President,  Directors,  and  Company  of 
the  State  Bank  of  Illinois."  This  bank  was  to  be  a  monster 
concern  with  a  capital  stock  of  $4,000,000.  One  half  was 
to  be  subscribed  by  individuals  and  the  remainder  by  the 
state.  Ten  per  cent,  of  the  subscriptions  was  to  be  paid  in 
specie  or  convertible  bank  notes;  and  operations  were  to  be- 
gin as  soon  as  $15,000  were  paid  in.  Ten  branch  banks 
could  be  established.  Six  directors  were  to  be  elected  by 
the  stockholders  and  six,  together  with  the  president,  by 
the  Senate  and  House  of  Representatives  on  joint  ballot. 
*Ford's  History  of  Illinois,  p.  44. 


On  account  of  interference  in  politics  by  the  banks  at 
Edwardsville  and  Shawneetown,  a  provision  was  incor- 
porated in  the  charter  of  the  new  bank,  that  no  member  of 
the  General  Assembly  nor  any  judge  of  the  Supreme  Court 
or  Circuit  Court  could  be  a  director.  In  its  lesser  details 
the  charter  was  almost  identical  with  that  of  the  Shawnee- 
town bank. 

The  attempt  was  a  failure.  Not  a  dollar  of  stock  was 
ever  subscribed,  and  the  institution  perished  at  its  birth. 
Its  charter  was  repealed  in  1821. 

These  were  halcyon  days  for  the  speculator,  but  their 
end  was  close  at  hand.  The  time  of  reckoning-  came  with 
the  g-eneral  crash  of  state  banks  during-  1819-20.  There 
was  a  sudden  and  complete  collapse  of  prices.  The  ex- 
pected tide  of  immigration  had  failed  to  come.  Lands  pur- 
chased from  the  government  were  unpaid  for,  could  not  be 
sold,  and  were  likely  to  be  forfeited.  Specie  had  disap- 
peared before  the  bank  paper  and  when  this  became  worth- 
less there 'was  no  money  in  the  country,  nor  sufficient  com- 
merce to  bring-  it  from  abroad.  Suits  were  broug-ht  for  the 
payment  of  debts,  but  the  scarcity  of  monej  made  it  almost 
impossible  for  the  debtor  to  pay.  The  newspapers  of  the 
times  are  full  of  accounts  of  frauds,  riots,  and  robberies. 
So  keenly  was  the  distress  felt  that  near  the  close  of  the 
year  1819  a  Congressional  committee  noted  a  "change  of  the 
moral  character  of  many  of  our  citizens  [caused]  by  the 
presence  of  distress."  Contracts  which  had  been  entered 
into  when  prices  were  booming  now  began  to  mature  when 
property  was  almost  unsalable.  By  1821  every  one  was  clam- 
oring for  relief  "from  the  pressure  of  the  times."  As  usual 
under  such  circumstances  the  government  was  expected  to 
furnish  the  relief.  Urged  on  every  hand  to  ameliorate  the 
hard  times,  the  legislature  of  1821  revived  the  idea  of 
creating  a  bank  based  wholly  on  the  credit  of  the  state. 
With  its  creation  begins  the  second  period  of  the  history  of 
banking  in  Illinois. 

SECOND  PERIOD  :  1819-1831. 

Acting  in  response  to  public  pressure  the  legislature 
repealed  the  charter  of  the  state  bank  of  1819  and  incor- 


10 

porated  a  new  one  under  the  name  of  the  "President,  Di- 
rectors and  Company  of  the  State  Bank  of  Illinois."  This 
was  to  be  owned,  operated,  and  backed  by  the  state,  the 
legislators  apparently  having*  become  convinced  that  inas- 
much as  the  Edwardsville  and  Shawneetown  banks  had  both 
suspended  payment,  nothing-  but  state  influence  and  credit 
could  sustain  any  banking-  institution. 

The  bank  was  to  be  located  at  Vandalia,  then  the  seat  o  f 
g-overnment,  was  to  have  a  capital  of  $500,000,  and  was  to 
continue  for  ten  years.  It  was  empowered  to  receive  and 
hold  for  the  use  of  the  state  any.  kind  of  property  to  an 
amount  not  to  exceed  twice  the  capital  stock,  and  to  convey 
the  same  under  the  control  and  by  the  authority  of  the  Gen- 
eral Assembly.  The  state  was  divided  into  five  districts 
in  each  of  which  banch  banks  were  to  be  established.*  The 
president  and  directors  were  to  be  elected  biennially  by  the 
Senate  and  House  of  Representatives  on  joint  ballot,  six 
directors  being  chosen  for  the  principal  bank  and  five  for 
each  of  the  branches. 

Two  thousand  dollars  were  appropriated  from  the 
treasury  to  defray  the  cost  of  issuing-  three  hundred  thous- 
and dollars  in  notes  in  denominations  not  exceeding-  twenty 
dollars  nor  less  than  one.  These  notes  were  to  bear  inter- 
est at  the  rate  of  two  per  cent,  per  annum,  and  were  pay- 
able for  salaries  of  state  officers,  and  receivable  for  all  debts 
due  the  bank,  the  state  or  any  county,  and  were  to  be  dis- 
tributed to  the  presidents  and  directors  of  the  branches  in 
the  several  districts  "in  proportion  to  the  inhabitants  of 
each  district  respectively."  The  bank  had  absolutely  no 
capital  save  the  two  thousand  dollars  appropriated  to  set  it 
up.  As  soon  as  the  branch  banks  received  their  portion  of 
the  notes  they  were  to  loan  the  same  as  fast  as  applied  for, 
distributing-  the  loans  among  the  inhabitants  as  nearly  as 
possible  according  to  population.  All  loans  above  one  hun- 
dred dollars  were  to  be  secured  by  mortgage  on  real  estate 
double  the  value  of  the  amount  loaned.  For  sums  of  one 
hundred  dollars,  or  under,  approved  personal  security  would 

*These  branches  were  located  at  Edwardsville,  in  Madison  County; 
Brownsville,  in  Jackson  County;  Shawneetown,  in  Gallatin  County;  and 
Palmyra,  in  Edwards  County. 


11 

be  taken.  No  person  was  to  be  entitled  to  receive  a  greater 
loan  than  one  thousand  dollars,  nor  from  any  bank  but  the 
one  located  in  the  district  in  which  he  resided.  All  loans 
were  to  draw  interest  at  six  per  cent,  and  to  be  renewable 
annually  on  payment  of  ten  per  cent,  of  the  principal.  The 
branch  banks  were  to  report  half-yearly  to  the  principal 
bank,  and  the  latter  biennially  to  the  legislature,  which 
was  to  appoint  a  permanent  committee  to  examine  the  bank 
or  branches  whenever  it  thought  necessary. 

The  banks  were  to  transact  no  business  but  loaning 
notes,  "except  that  they  may  receive  in  exchange  for  their 
own  bills,  and  notes,  land  office  paper  of  the  district  in 
which  the  bank  may  be  located,  or  gold  and  silver  coins; 
—all  which  exchanges  shall  not  be  made  otherwise  than  at 
par."  Notes  could  not  be  issued  beyond  the  value  of  the  paid 
up  capital.  One-tenth  ot  the  notes  was  to  be  retired  annu- 
ally, and  all  lands,  funds,  and  revenues,  present  and  future, 
of  the  state,  its  faith  and  credit,  were  irrevocably  pledged  for 
the  redemption  of  the  bank's  notes  within  ten  years.  All 
executions  on  judgments  then  in  force  were  stayed  for  nine 
months  and  might  be  replevied  for  three  years  thereafter 
unless  the  plaintiff  would  endorse  on  the  back  of  the  execu- 
tion "that  the  notes  or  bills  of  the  State  bank  of  Illinois 
or  of  either  of  its  branches  will  be  received  in  discharge  of 
this  execution."  Judgments  on  certain  contracts  for  money 
entered  into  after  three  months  from  the  passage  of  the  act 
were  to  be  "found  due  and  assessed  payable  in  the  notes  or 
bills  of  the  State  Bank  of  Illinois."  By  these  two  provisions 
the  notes  were  given  a  quasi  legal  tender  character.  The 
treasurer  of  the  state  was  to  deposit  all  state  funds  in  the 
bank  and  make  his  payments  by  checks  on  this  deposit. 
Likewise  all  moneys  accruing  to  the  state  from  the  United 
States  for  school  purposes,  together  with  all  specie  or  land 
office  money  that  should  come  into  the  treasury,  were  to  be 
turned  over  to  the  principal  bank,  which  was  authorized  to 
issue  notes  to  double  the  amount  of  money  so  deposited. 
These  were  always  to  be  redeemable  in  gold  or  silver  coin  at 
the  principal  bank.  All  specie  received  at  the  branch  banks 
was  to  be  forwarded  to  the  principal  bank. 

A  supplement  to  the  above  act,    making  some  slight 


12 

changes  in  the  bank's  government  and  enacting- stricter  stay 
laws  for  the  collection  of  debts,  was  passed  about  a  week 
later.  In  fact,  during  its  entire  existence  the  bank  was  a 
prolific  source  of  legislation  since  at  almost  every  session 
of  the  General  Assembly  either  the  bank  or  bank  debtors 
prayed  relief,  while  difficulties  in  the  bank's  operation  were 
constantly  appearing. 

The  project  met  with  strong  opposition  from  the  start. 
By  the  constitution  of  the  state  at  that  time  the  governor 
did  not  have  a  veto  on  legislation,  but  together  with  the 
judges  of  the  Supreme  Court  constituted  a  Council  of  Re- 
vision whose  duty  it  was  to  examine  all  bills  passed  by  the 
legislature  and  approve  them  or,  if  any  bill  was  objection- 
able, to  return  it  with  the  objections  in  writing  to  the  house 
whence  it  originated.  When  the  bank  bill  passed  the  leg- 
islature, it  was  returned  by  this  council  with  very  urgent 
objections.  In  the  opinion  of  the  council  the  act  violated 
the  tenth  section  of  the  Constitution  of  the  United  States 
which  declares  that  "no  state  shall  *  *  emit  bills  of 
credit;  make  anything  but  gold  and  silver  a  tender  in  pay- 
ment of  debts,  etc."  The  bank  was  certainly  a  state  insti- 
tution, officered  by  the  legislature  and  backed  by  the  credit 
and  resources  of  the  state.  Through  the  medium  of  the 
bank  "the  State  by  virtue  of  its  sovereignty,  and  upon  the 
faith  of  its  credit"  was  to  "emit  paper  money,  redeemable 
by  the  state,  at  a  future  day."  This,  the  council  main- 
tained, was  emitting  bills  of  credit  in  the  sense  in  which  it 
was  forbidden  to  the  states  by  the  constitution.  At  any 
rate  these  proposed  bank  notes  would  produce  all  the  evil 
effects  which  the  constitutional  provision  was  designed  to 
prevent.  Nor  did  the  council  believe  that  the  notes  would 
furnish  the  citizens  of  the  state  "with  the  means  of  com- 
munication and  intercourse  with  other  States."  They  even 
feared  that  the  citizens  themselves  could  not  be  forced  to 
take  the  bank  paper.  The  argument  that  like  measures 
had  been  resorted  to  in  other  states  would  not  justify  either 
the  constitutionality  or  expediency  of  this  measure;  and 
they  believed  that  the  "embarassments  of  the  people"  could 
be  relieved  without  resort  to  it. 

These  objections  were  replied   to  very   fully,  though 


13 

with  more  of  assurance  than  of  logic,  by  the  special  com- 
mittee to  which  they  were  referred  by  the  house.  The 
committee  declared  that  the  proposed  notes  were  not  bills  of 
credit,  but  rather  bank  notes  or  promissory  notes;  that  these 
were  not  made  a  legal  tender  but  could  be  received  or  not  at 
pleasure;  that  banking"  rights  were  reserved  to  the  state  by 
the  constitution  of  1817,  " which  had  been  discussed  and 
passed  upon  by  the  Federal  Congress;"  and  that  a  measure 
similar  to  the  one  in  question,  passed  in  1819,  had  met  with 
approval.  Besides,  the  redemption  of  these  notes  was  sure, 
"depending-  on  no  contingency  whatever,"  while  the  notes 
of  private  banking  institutions  were  always  insecure  and 
generally  proved  to  be  irredeemable.  And  if  the  notes  would 
not  circulate  in  other  states,  so  much  the  better,  for  then 
they  would  remain  at  home,  answer  all  the  needs  of  the 
people,  and,  when  redeemed,  the  money  paid  out  would  go 
to  citizens  of  the  state. 

John  McLean,  speaker  of  the  lower  house  of  the  Gen- 
eral Assembly  resigned  his  position  in  order  to  speak  against 
the  bank  bill.  He  foretold  many  of  the  evil  consequences 
which  the  bank  brought  on  the  state.  In  spite  of  Mc- 
Lean's eloquence  and  the  objections  of  the  council  the  bill 
was  passed  by  the  constitutional  majority.  Thereupon 
four  members  of  the  house  who  voted  in  the  negative  en- 
tered a  protest  on  the  journal  by  way  of  justifying-  their 
action.  This  protest  is  interesting-  as  showing-  some  of  the 
ideas  then  current  in  reg-ard  to  the  power  of  banks  to  in- 
jure the  public,  and  the  extreme  prejudice  ag-ainst  all  bank- 
ing- institutions  caused  by  the  reckless  banking-  of  the  ten 
years  previous. 

The  protestants,  after  recounting-  the  constitutional 
objections  to  the  scheme,  declared  that  "all  banking-  insti- 
tutions, even  when  founded  upon  a  specie  capital,  are,  in  our 
opinion  dang-erous  to  civil  liberty — the  public  and  private 
morals  of  our  citizens. "  They  believed  that  this  bank  would 
place  a  power  in  the  hands  of  ambitious  men  which  would 
"endang-er  the  existence  of  our  political  union."  The  morals 
of  the  citizens  would  be  corrupted  by  putting-  ua  means  into 
their  hands  whereby  they  will  have  a  quick  and  easy  access 
to  every  luxury  and  vice."  The  idea  that  a  bank  such  as 


14 

the  state  bank  of  Illinois,  based  wholly  on  faith  and  paper, 
could  exist  ten  years  and  maintain  its  own  and  the  state's 
credit  without  depreciation,  appeared  to  them  to  be  "an 
idle  calculation,  a  visionary  phantom,  the  acme  of  legisla- 
tive folly,  calculated  to  deceive  the  credulous,  honest  and 
industrious  part  of  the  community."  The  currency  of  the 
bank  would  tend  to  further  the  schemes  of  the  speculator, 
the  bankrupt,  and  the  ambitious  politician,  while  the  bank 
itself  would  be  a  "hobby  horse  by  which  some  political 
demagogue  will  ride  into  power —  *  *  *  a  curtain 
behind  which  the  more  artful  but  less  daring-  politician 
will  act  by  means  of  his  dupes  and  tools  without  detec- 
tion." The  present  embarrassments  of  the  country  have 
been  in  a  great  degree  caused  by  banks,  which  "ought 
to  teach  us  a  sad  lesson  of  their  imprudence."  And  fur- 
ther: "No  part  of  our  citizens,  either  commercial,  manu- 
facturing1 or  agricultural  require  any  such  currency." 

The  portion  of  the  protest  which  predicted  the  depre- 
ciation of  the  bank's  paper,  and  with  it  the  credit  of  the  state, 
and  the  use  to  which  the  bank  would  be  put  in  serving-  the 
ends  of  politicians,  was  prophetic. 

The  unconstitutionality  of  notes  such  as  the  bank  pro- 
posed to  issued  was  affirmed  sometime  afterward  by  the 
Supreme  Court  of  the  United  States,*  althoug-h  the  Supreme 
Court  of  Illinois  had  in  1826  ruled  that  they  were  constitu- 
tional. Aside  from  the  question  of  constitutionality, however, 
the  issue  of  inconvertible  notes  was  objectionable,  and  the 
worst  feature  of  the  whole  measure  was  that  which  required  a 
creditor  to  take  these  notes  at  par  for  his  debt  or  suffer  it  to 
be  replevied  for  three  years  by  the  debtor.  This  feature 
was  re-enacted  repeatedly  in  the  form  of  "stay  laws"  and 
"stop  laws"  throughout  the  life  time  of  the  bank. 

At  first  the  bank  was  very  popular.  There  was  of 
course  no  difficulty  in  putting-  it  in  operation,  since  no 
capital  was  required.  It  was  generally  believed  that  its 
notes  would  be,  or  ought  to  be,  accepted  at  the  land  offices 
the  same  as  specie.  The  expectation  was  not  realized.  More- 
over, most  of  the  people  really  expected  the  bank  to  bring 
prosperity  to  the  state.  Not  only  did  its  opponents  believe 
*Craig  vs.  State  of  Missouri,  4  Peters  410. 


15 

that  it  would  put  a  means  into  the  hands  of  the  people 
"whereby  they  will  have  a  quick  and  easy  access  to  every 
luxury  and  vice,''  but  judging-  from  the  dishonesty  that  it 
afterwards  developed,  some  of  its  advocates  thought  the 
same  and  preferred  luxurious  vice  to  destitute  morality. 

Its  officers  being  elected  by  the  legislature,  the  bank 
naturally  fell  into  the  hands  of  politicians,  who  combined 
ignorance  and  viciousness  in  its  management.  Three  hun- 
dred thousand  dollars  in  notes  were  issued  and  at  once  loaned 
with  little  care  as  to  security  or  certainty  of  payment. 
'  'Every  man  who  could  get  an  endorser  borrowed  his  hundred 
dollars."  All  the  directors  "either  were  then  or  expected 
to  be  candidates  for  office.  Lending  to  everybody  and  re- 
fusing none  was  the  surest  road  to  popularity."  Under  the 
charter  the  bank  officers  had  the  right  to  become  the  largest 
borrowers,  the  twenty  six  officials  being  entitled  to  receive 
$51,350,  or  over  one-sixth  of  all  the  bank's  notes.  They 
used  their  right  freely,  either  borrowing  or  transferring 
their  "right  to  borrow,  to  the  full  limit  of  the  law,  and  thus 
became  more  interested  than  any  other  class  in  the  commun- 
ity, in  impairing  the  credit  of  the  institution,  and  depreciat- 
ing its  notes,  as  the  means  of  facilitating  the  discharge  of 
the  debts  they  had  contracted  with  it.  And  hence  *  *  those 
gentlemen  *  *  have  been  generally  if  not  universally, 
found  among  the  warmest  advocates  for  depreciating  those 
notes;  scaling  bank  debts,  and  various  other  expedients 
whose  inevitable  effects  would  be,  the  revolting  injustice  of 
requiring  the  balance  of  the  community  to  be  taxed  for  the 
payment  of  their  debts."*  With  such  management  it  is  not 
surprising  that  the  bank  brought  only  distress  and  disaster 
to  the  state. 

No  specie  of  consequence  was  ever  received  by  the  bank. 
One  branch  received  only  two  dollars  in  specie,  both  of 
which  were  kept  as  curiosities.f  The  notes  fell  to  seventy 
cents,  then  to  fifty,  then  to  twenty-five,  and  finally  ceased  to 
circulate.  No  more  than  $300,000  were  issued.  The  notes 
of  the  Ohio  and  Kentucky  banks  had  previously  driven  all 
the  specie  out  of  the  country  and  these  notes  kept  it  out. 

*Governor'3  Message,  1826. 
tBrown's  History  of  Illinois,  p.  433. 


16 

The  people  cut  the  new  bills  in  pieces  to  make  small  change 
and  for  four  years  this  paper  was  the  only  kind  of  money  in 
the  state.  "In  the  meantime,  very  few  persons  pretended 
to  pay  their  debts  to  the  bank.  More  than  half  of  those 
who  had  borrowed,  considered  what  they  had  gotten  from 
it  as  so  much  clear  gain,  and  never  intended  to  pay  it  from 
the  first."* 

But  the  bank  did  mischief  in  another  way.  In  Decem- 
ber, 1820,  the  governor  had  remarked  in  his  message,  upon 
the  "flourishing condition  of  the  treasury."  He  declared 
that  a  reduction  of  the  taxes  would  be  justified,  as  the  funds 
in  the  treasury  greatly  exceeded  the  demands  against  it.  In 
1823  the  "funds"  in  the  treasury  consisted  of  state  bank 
paper  worth  about  fifty  cents  on  the  dollar.  In  1823  the 
state  auditor  pointed  out  that  on  account  of  the  low 
price  of  the  notes  of  the  bank,  debts  due  the  state 
by  non-residents  could  be  liquidated  at  half  their 
value,  and  that  people  in  the  service  of  the  state  at  fixed 
salaries  suffered  severely  from  the  depreciation.  In  response 
to  his  request  for  action  on  the  matter  the  legislature 
doubled  the  pay  of  its  members  and  of  some  other  officials. 
This  increase  of  expenditure  soon  emptied  the  treasury,  and 
auditor's  warrants  were  issued  in  excess  of  the  means  to  pay 
them.  By  1825  the  bank  notes  and  auditor's  warrants 
alike  had  depreciated  still  further,  $6,000  of  the  paper  hav- 
ing been  disposed  of  by  the  the  canal  commissioners  at  the 
rate  of  27 y?.  cents.  The  legislature  made  it  the  duty  of  th  e 
auditor,  treasurer,  secretary  of  state,  and  cashier  of  the 
principal  bank  to  determine  every  month  the  current  value 
of  the  paper  of  the  state  bank,  and  this  value  was  to  be  the 
rate  at  which  the  paper  should  be  paid  out  at  the  treasury 
for  the  succeeding  month.  Until  these  officers  had  fixed 
such  a  value  the  auditor  was  to  rate  the  notes  of  the  bank  at 
three  dollars  for  one  in  specie.  Both  the  notes  and  warrants 
being  receivable  for  taxes  and  debts  due  the  state,  the 
result  of  the  depreciation  was  to  treble  the  state  expenses 
without  increasing  the  revenue.  .  In  1825,  $107,782  were 
paid  out  in  auditor's  warrants  which  in  good  money  at  that 
period  were  not  worth  more  than  $35,000,  at  the  outside. 
*Ford's  History  of  Illinois,  p.  47. 


17 

Moreover,  the  revenue  of  the  state  then  came  almost  exclu- 
sively from  the  tax  on  lands  of  non-residents.  Hence  this 
virtual  decrease  in  the  revenue  was  a  relief  not  to  the  citi- 
zens but  to  the  non-residents.  These  latter  bought  up  the 
paper  when  it  was  cheapest  and  kept  it  to  pay  taxes. 

The  bank  was  from  the  start  an  important  element  in 
state  policy  and  legislation.  In  1824  governor  Coles  rec- 
ommended that  it  be  thoroughly  investigated  and  that 
some  measures  be  taken  to  restore  the  credit  of  its  paper. 
In  pursuance  of  this  recommendation  an  investigation  was 
made  and  it  was  found  that  up  to  the  10th  of  January,  1825, 
"the  current  expenses  of  the  principal  bank  had  exceeded 
the  discounts  by  $2403.90."  The  Palmyra  and  Kdwards- 
ville  branches  each  showed  a  fair  profit  and  the  Browns- 
ville branch  a  loss.  The  Shawneetown  branch  had  been 
"loosely  and  irregularly  conducted"  and  its  papers  and  ac- 
counts were  in  a  "deranged  position."  There  appeared  to 
be  a  defalcation  of  $4,800.76  by  the  cashier,  and  $3,750.00 
had  been  loaned  in  the  previous  October  without  security. 
No  attempt  was  made  at  the  time  to  punish  the  officers  of 
the  Shawneetown  branch  for  their  culpable  negligence. 

The  legislature  enacted  a  law  staying  executions  of 
judgments  and  requiring  courts  to  render  judgments  on 
contracts,  and  to  issue  executions,  payable  in  bank  paper. 
It  was  made  the  duty  of  the  cashier  of  the  principal  bank 
to  burn  all  notes  on  hand,  and  not  needed  for  expenses,  in 
the  public  square  in  Vandalia  in  the  presence  of  the  gover- 
nor and  certain  other  officers.  Notes  received  at  the  treas- 
ury and  again  paid  out  were  to  cease  bearing  interest. 
Auditor's  warrants  were  made  receivable  for  bank  debts. 
The  bank  was  forbidden  longer  to  receive  deposits  from  in- 
dividuals and  deposits  already  received  were  to  be  returned 
to  the  depositors.  The  offices  of  the  presidents  and  directors 
of  the  branch  banks  were  abolished  and  the  management 
of  these  branches  entrusted  solely  to  cashiers  appointed  by 
the  governor.  . 

The  object  of  this  legislation  was  to  reduce  the  func- 
tions of  the  bank  as  nearly  as  possible  to  the  collection  of 
its  debts,  and  to  restore  the  credit  of  its  currency.  In  both 
his  subsequent  messages  governor  Coles  again  recommended 


18 

this  policy,  and,  in  Dec.  1826,  advised  winding1  up  its  affairs. 
Of  the  $300,000  issued  by  the  bank  $100,000  was  burned 
prior  to  January  1st,  1826,  leaving  $200,000,  exclusive  of 
interest  accrued,  still  outstanding-.  Governor  Edwards  in  his 
inaugural  message  in  1826  strongly  attacked  the  entire 
banking  system,  and  especially  the  management  of  the 
Shawneetown  branch,  alleging  that  the  report  of  the  in- 
vestigating1 committee  showed  that  there  had  been  the 
"clearest  moral  perjury"  on  the  part  of  the  officers  of  that 
branch.  In  subsequent  messages  he  charged  specific  acts 
of  corruption  upon  the  officers  of  the  Edwardsville  branch, 
and  particularly  upon  judge  Smith,  the  cashier,  who,  the 
governor  claimed,  had  violated  every  provision  of  the 
bank's  charter  in  reg-ard  to  making  loans,  and  had  been 
guilty  of  culpable  negligence  in  their  collection.  In  a  later 
message  the  governor  made  nine  distinct  charges  of  mal- 
administration against  the  cashier  of  the  principal  bank  at 
Vandalia,  and  added  a  charge  against  judge  Smith  to  the 
effect  that  he  had  appropriated  to  his  own  use  and  still  held 
a  larg-e  amount  of  the  bank's  funds. 

The  men  attacked  were  adroit  politicians,  prominent 
and  influential  Whigs,  while  the  g-overnor  was  a  Democrat. 
They  formed  a  combination  to  resist  the  attack,  rallied 
their  friends  and  the  friends  and  employees  of  the  bank  to 
their  support,  raised  the  cry  of  persecution  and  denounced 
the  charges  as  political  spite.  The  Whigs  had  a  majority 
in  the  legislature,  and  the  charges  were  referred  to  a  special 
committee  which  g-overnor  Ford  says  was  "packed."  This 
committee  found  that  some  of  the  charg-es  were  not  borne 
out  by  the  facts,  and  the  governor  retracted  others.  Yet  much 
irregularity  in  the  conduct  and  management  of  the  bank 
was  brought  to  light.  The  committee  passed  a  resolution 
acquitting  the  bank  officers  of  any  wilful  misconduct. 

The  legislation  of  the  next  three  General  Assemblies 
was  aimed  chiefly  at  facilitating  the  collection  of  bank 
debts.  The  expedients  resorted  to  and  the  inducements 
offered  in  this  connection  emphasize  the  laxity  and  general 
indifference  of  the  people  towards  paying  their  debts.  This 
feeling  of  indifference  was  apparently  common  at  that  time 
and  had  been  produced  largely  by  the  bank.  The  legisla- 


19 

ture  of  1826  passed  another  stay  law,  for  three  months.  All 
defaulters  in  payments  on  bank  debts  were  given  the  right 
to  renew  their  loans,  and  judgments  were  to  be  marked 
satisfied  on  receipt  of  the  debtor's  note  for  the  amount  of 
the  judgment.  The  pay  of  the  cashiers  was  reduced,  and 
that  of  the  president  and  directors  of  the  principal  bank 
was  withdrawn. 

In  1829  it  was  enacted  that  all  public  officers  in  debt  to 
the  bank  should  not  receive  their  salaries  until  their  debts 
were  paid.  Defaulters  to  the  bank  were  to  be  allowed  to 
pay  up  in  three  annual  installments  by  executing  new 
notes,  one  for  each  installment.  These  notes  were  to  be 
accepted  in  satisfaction  of  judgments  already  obtained. 
The  office  of  cashier  of  the  principal  bank  was  abolished 
and  its  duties  transferred  to  the  state  treasurer.  Debtors 
to  the  bank  who  would  pay  up  before  the  1st  of  July,  1830, 
were  to  be  released  from  all  interest,  and  those  who  would 
pay  before  Sept.  1st,  1829,  were  to  be  allowed  ten  per  cent, 
discount  with  the  interest. 

The  governor  was  directed  to  borrow  all  the  specie  of 
the  school  and  seminary  fund  with  which  to  meet  the  cur- 
rent expenses  of  the  government  for  the  last  three  quarters  of 
the  year  1830.  In  his  report  for  1830  the  state  treasurer  recom- 
mended that  the  state  paper  be  funded  into  certificates  of 
stock  bearing  legal  interest  and  that  a  loan  be  negotiated 
sufficient  to  pay  the  government  expenses  for  the  next  two 
years  so  that  the  revenue  during-  that  time  could  be  applied 
to  the  payment  of  interest  and  the  principal  debts.  He 
estimated  the  amount  of  fundable  state  paper  at  $120,000, 
including  interest.  It  would  seem  from  this  that  the  pre- 
vious efforts  to  call  in  the  paper  had  not  been  very  success- 
ful. 

It  devolved  upon  the  legislature  of  1830-31  to  take 
measures  for  winding  up  the  affairs  of  the  bank  and  to 
make  provision  for  the  redemption  of  its  notes,  which  were 
to  fall  due  in  the  course  of  the  following  summer.  The 
redemption  of  these  notes  meant  high  taxes  and  more  debt, 
and  was  sure  to  raise  a  storm  of  popular  dissatisfaction. 
Every  previous  legislature  had  shunned  the  difficulty,  but 
it  could  be  postponed  no  longer.  In  accordance  with  the 


20 

recommendation  of  the  treasurer  it  was  provided  that 
holders  of  state  paper  might  have  the  same  funded  into  six 
per  cent,  stock,  interest  payable  semi-annually.  The  stock 
was  made  receivable  for  debts  due  the  state,  and  was  re- 
deemable at  the  pleasure  of  the  state.  The  governor  was 
authorized  to  negotiate  a  loan  of  $100,000  to  be  applied  to 
current  expenses  and  the  redemption  of  state  paper.  The 
treasurer  and  auditor  were  to  issue  stock  for  the  loan,  $50,- 
000  of  which  was  to  be  paid  in  specie  or  United  States  bank 
notes,  and  $50,000  in  specie  funds,  state  paper  or  auditor's 
warrants.  On  the  12th  of  February,  1831,  the  g-overnor, 
the  auditor,  the  secretary  of  state  and  the  treasurer,  were 
to  burn  all  the  state  paper  in  the  treasury,  whether  belong- 
ing to  the  bank  or  state,  and  in  like  manner  to  burn  all 
on  hand  the  end  of  every  quarter.  In  order  to  offset  in 
some  measure  the  unpopularity  of  the  loan,  debtors  of  the 
bank  were  allowed  to  the  1st  day  of  May,  1832,  to  pay  their 
debts  by  executing-  new  notes;  if  these  notes  should  be 
punctually  paid  interest  on  them  was  to  be  remitted,  and  if 
paid  before  December  1st,  1831,  six  per  cent,  discount  with 
the  interest  was  to  be  allowed.  All  debts  due  the  bank 
were  to  be  turned  over  for  collection  to  the  attorney  general 
and  the  state's  attorneys  before  the  4th  of  July,  1832,  and 
the  attorney  general  was  authorized  to  sell  all  the  bank 
property.  In  1832  a  supplementary  act  was  passed  which 
directed  the  circuit  court  to  cancel  the  debt  of  a  deceased 
debtor  if  in  the  opinion  of  the  court  its  collection  would 
distress  his  widow  or  orphan  children.  Moreover,  all  debtors 
to  the  bank  were  to  be  allowed  to  pay  their  debts  in  three 
annual  installments,  with  a  remission  of  the  interest  and 
twenty-five  per  cent,  of  the  principal.  The  leniency  toward 
bank  debtors  proved  very  short-sighted  statesmanship.  It 
not  only  caused  heavy  losses  in  the  collection  of  bank  debts, 
but  lowered  the  standard  of  honesty  of  the  community 
and  lessened  the  feeling-  of  oblig-ation  on  the  part  of  the 
debtors  generally,  so  that  as  early  as  1830,  perhaps, 
most  of  them  had  no  intention  of  paying  their  loans.  The 
leniency  may  be  explained  in  part  by  the  fact  that  the 
legislators  themselves  were  the  largest  debtors. 

The  loan  which  was  authorized  in  1831  was  secured  from 


21 

a  Mr.  Wiggins,  of  Cincinnati.  Demagogues  spread  the 
rumor  that  the  state  had  been  "sold"  to  Wiggins,  and  suc- 
ceeded in  kindling  the  wrath  of  the  people  against  the 
members  of  the  legislature  which  had  authorized  the  loan, 
so  that  most  of  them  were  politically  killed.  As  governor 
Ford  put  it,  "the  honor  of  the  state  was  saved  and  the  leg- 
islature forever  damned." 

The  loss  to  the  state  during  the  ten  year  regime  of 
state  bank  paper  has  been  estimated  at  $300,000,  in  receiv- 
ing and  paying  out  the  paper  at  the  treasury,  and  $100,000 
from  loans  which  were  never  repaid  and  had  to  be  made  good 
by  the  state.  In  addition  must  be  counted  the  injury  to  the 
public  credit  and  the  loss  from  the  extensive  issue  of  de- 
preciated auditor's  warrants,  for  which  the  bank  legislation 
Tfas  responsible.  Another  authority  places  the  total  loss  at 
$500,000.  The  loss  to  the  people  and  the  damage  to  busi- 
ness cannot  be  estimated.  Specie  was  gone,  public  and 
private  credit  broken  down,  enterprise  stagnant,  and  busi- 
ness morals  corrupted. 


THIRD  PERIOD :  1835-1842. 


From  1831  to  1835  Illinois  had  no  banks.  Indeed,  dur- 
ing these  years  the  legislature  was  careful  to  insert  in  all 
charters  granted  to  corporations  for  business  purposes  that 
no  banking  functions  should  be  exercised  by  the  corpora- 
tion. But  by  1835  the  reaction  against  banks  had  nearly 
spent  its  force,  while  events  had  recently  occurred  which 
seemed  to  make  a  bank  desirable  for  the  state.  Among 
these  events  was  the  employment  of  the  state  banks  as  de- 
positories by  the  national  treasury.  This  employment  was 
one  of  the  results  of  President  Jackson's  successful  "war" 
on  the  Bank  of  the  United  States.  In  his  report  for  1834, 
the  Secretary  of  the  Treasury,  Mr.  Woodbury,  remarked 
that  the  $10,000,000  of  public  deposits  were  enabling  the 
selected  state  banks  "to  discount  freely,  and  to  support  a 
sound  paper  currency  in  their  own  neighborhood."  Some 
of  the  people  of  Illinois  began  to  think  it  unfortunate  that 
their  state  was  not  in  a  position  to  obtain  a  share  of  the 
benefits  to  be  derived  from  the  use  of  the  public  funds. 


22 

In  his  message  to  the  legislature  in  December,  1834, 
acting-  governor  Wm.  Lee  D.  Ewing,  in  the  following-  some- 
what remarkable  passage,  proposed  the  re-establishment  of 
a  bank:  "Permit  me  to  present  to  the  consideration  of  your 
honorable  body,  the  subject  of  the  establishment  of  a  State 
Bank.  Public  opinion  seems  to  have  been  pronounced 
against  the  re-charter  of  the  present  Bank  of  the  United 
States,  in  such  unequivocal  language  as  to  involve  the  es- 
tablishment of  such  an  institution  in  an  absolute  necessity. 
I,  therefore,  in  my  capacity  as  Senator,  propose  to  offer  for 
your  consideration  a  project  for  a  State  Bank,  which,  under 
the  administration  of  judicious  management,  will  annually 
defray  the  expenses  of  the  civil  administration  of  the  State 
Government — pay  off  the  interest  and  principal  of  the  state 
loan — reproduce  the  annihilated  school  fund,  and  bring  it 
back  into  being — cover  all  contingent  defalcations  and 
create  a  fund  for  the  ultimate  payment  of  the  loan  neces- 
sary to  be  made  upon  which  to  found  the  bank,  as  also  the 
annual  payment  of  the  interest  thereof.  And  in  addition 
to  all  these  desiderata,  afford  to  our  country,  at  this  time 
almost  wholly  destitute  of  a  monetary  medium,  a  safe  and 
approvable  currency.  The  bills  of  the 

United  States  Bank,  withdrawn  from  circulation,  as  they 
necessarily  will  be,  in  order  to  a  final  close  of  its  concerns, 
our  State  will  be  left  without  a  known  good  or  bad  currency. 
Hence  I  propose  the  establishment  of  a  State  Bank,  founded 
not  upon  the  baseless  impalpable  fabric  of  a  vision — but 
upon  a  gold  and  silver  reality." 

In  his  inaugural  address  at  the  same  session  governor 
Duncan  also  advocated  chartering  a  bank,  but  advised  cau- 
tion in  framing  its  charter.  "Unfortunately,"  he  said,  "bank 
are  too  often  established  to  benefit  the  rich  speculator,  with 
no  reference  to  the  interest  and  convenience  of  the  indus- 
trious poor,  which  has  justly  excited  a  jealously  among  the 
people  against  all  banks,  and  should  admonish  us  to  be  ex- 
ceedingly careful  in  the  first  permanent  introduction  of 
them  into  our  state." 

Perhaps  the  majority  of  the  people  of  the  state  wished 
to  be  as  cautious  as  governor  Duncan,  but  some,  according 


23 

ing  to  Ford,*  were  anxious  that  the  speculations  prevalent 
farther  east  should  begin  in  Illinois.  The  mania  for  sud- 
den riches,  which,  as  Prof.  Sumnerf  says,  is  the  chief  cause 
of  periods  of  speculative  madness,  had  already  taken  pos- 
session of  the  people  in  the  northern  and  eastern  parts  of 
of  country.  It  was  due  in  great  part  to  the  enlargement  of 
the  Erie  Canal  in  1835,  J  which  was  expected  to  do  wonders 
for  the  development  of  the  territory  bordering  on  the  lakes. 
Speculation  in  Illinois  had  just  begun  and  was  as  yet  confined 
entirely  to  Chicago.  The  Whigs  as  a  party  were  supposed 
to  be  favorable  towards  banks,  state  and  national,  and 
many  Democrats  argued  that  President  Jackson,  though  he 
destroyed  the  Bank  of  the  United  States  and  denounced  it 
as  a  * 'permanent  electioneering  machine,"  was  in  favor  of 
state  and  local  banks. 

These  various  considerations  led  to  an  attempt  in  the 
legislature  of  1835  to  re-establish  a  state  bank.  The  es- 
tablishment ot  a  bank  had  not  been  an  issue  in  the  cam- 
paign, and  their  experience  with  the  old  state  bank  had 
made  so  deep  an  impression  on  the  people  that  the  project 
met  with  strong  opposition.  In  the  house  it  passed  by  a 
majority  of  only  one  vote — 27  to  26.  This  vote  was  ob- 
tained by  the  bank  party  from  a  member  opposed  to  the 
bank,  in  consideration  of  his  election  as  state's  attorney. 
In  the  senate  a  vote  was  obtained  from  a  senator,  likewise 
opposed  to  banks,  in  consideration  of  the  passage  of  a  bill 
to  tax  the  lands  of  non-residents  in  the  military  tract  at  a 
high  rate  for  road  purposes,  f  By  such  means  as  these  the 
bank  measure  was  pushed  through  the  legislature,  and  the 
Council  of  Revision  approved  it,  though  the  governor  ob- 
jected. It  was  not  a  party  measure.  Both  Democrats  and 
Whigs  voted  for  it  on  grounds  of  public  utility  and  expe- 
diency. It  proved,  however,  to  be  the  first  of  a  series  of 
legislative  acts  which  brought  the  most  disastrous  results 
upon  the  state. 

The  act  incorporating  the  "President,  Directors,  and 
Company  of  the  State  Bank  of  Illinois,"  approved  by  the 

*Ford's  History  of  Illinois,  p.  169. 

tSumner's  History  of  American  Currency,  p.  124. 

Ubid.,  p.  ]18. 

1  Ford's  History  of  Illinois,  p.  170. 


24 

governor  February  12,  1835,  was  a  much  better  and  wiser 
instrument  than  that  which  established  the  old  state  bank. 
The  capital  stock  was  to  be  $1,500,000,  which  might  be  in- 
creased by  individual  subscriptions  by  an  amount  not  ex- 
ceeding- $1,000,000;  but  business  mig-ht  be  commenced  as 
soon  as  $250,000  in  specie  were  subscribed.  The  state  was 
to  subscribe  $100,000  whenever  the  legislature  thoug-ht 
proper  and  the  condition  of  the  treasury  justified. 

The  bank  was  to  continue  twenty-five  years.  It  could 
hold  only  such  real  estate  as  was  necessary  to  its  business 
or  had  been  mortgaged  to  it  as  security  for  loans.  The 
principal  bank  was  to  be  at  Springfield,  and  an  office  of 
deposit  and  discount  at  Vandalia.  The  president  and 
directors  were  empowered  to  establish  as  many  as  six  other 
offices  of  discount  and  deposit.  Ten  dollars  in  specie  or  notes 
of  the  Bank  of  the  United  States  or  certificates  of  deposit 
in  any  of  the  deposit  banks  of  the  United  States  in  New 
York  or  Philadelphia,  were  to  be  paid  down  on  each  sub- 
scription, and  the  remainder  in  such  installments  as  the 
directors  might  determine,  but  no  installment  could  be 
demanded  without  eight  weeks'  notice.  As  it  was  desired 
that  the  stock  be  held  as  far  as  possible  by  the  citizens  of 
the  state,  the  charter  provided  that  the  subscription  books 
should  be  opened  twenty  days  earlier  within  the  state  than 
elsewhere,  and  that  if  upon  closing  them  it  was  found  that 
more  than  $1,400,000  had  been  subscribed,  the  excess  was  to 
be  taken  first  from  non-resident,  and  then  from  the  large 
resident,  subscribers.  The  provisions  intended  to  restrict 
non-resident  and  extensive  stock  holding  failed  completely 
to  effect  their  purpose.  Through  numberless  agents  scat- 
tered over  the  state,  non-residents  secured  powers  of 
attorney  from  many  persons,  "empowering  them  respec- 
tively to  subscribe  bank  stock  for  them  and  to  manage  it 
subsequently."  * 

In  order  to  divorce  the  bank  from  politics  the  officers 
were  prohibited  by  the  charter  from  membership  in  the 
legislature,  and  the  bank  was  forbidden  to  interfere  in 
elections  under  penalty  of  forfeiting  its  charter.  The  cor- 

*Davidson  and  Stuve's  History  of  Illinois,  p.  419. 


25 

poration  was  given  power  to  borrow  any  sum  not  exceeding- 
Si,  000, 000  and  to  loan  it  on  real  estate  double  in  value  to 
the  amount  loaned,  for  a  term  not  exceeding-  five  years,  at  a 
rate  not  higher  than  ten  per  cent.  It  could  issue  notes  to 
the  extent  of  two  and  one  half  times  its  capital  stock  paid 
in  and  possessed,  exclusive  of  deposits,  and  could  loan  and 
discount  to  three  times  the  amount  of  such  stock.  If  it 
should  refuse  for  ten  days  to  redeem  any  of  its  notes  in 
specie  its  charter  was  to  be  forfeited  and  damag-es  assessed 
to  the  holder  of  the  notes  at  the  rate  of  ten  per  cent,  from 
the  time  the  notes  were  presented  until  they  were  paid.  Notes 
of  a  less  denomination  than  five  dollars  were  not  to  be 
issued,  and  the  legislature  might,  after  fifteen  years,  re- 
strict the  issue  of  denominations  less  than  ten  dollars.  As 
a  safeg-uard  against  the  repetition  of  the  "stay  laws"  of  the 
period  of  the  former  bank,  it  was  provided  that  "The  Leg- 
islature  of  this  State  shall  never  pass  any  law  retarding-, 
obstructing,  staying,  protracting-  or  in  any  wise  suspending 
the  collection  of  any  debt  or  debts  due  the  bank."  In 
lieu  of  all  other  taxes  and  impositions  the  bank  was  annually 
to  pay  into  the  state  treasury  one  half  per  cent,  on  its 
capital  stock  paid  in  by  individuals. 

The  same  causes  which  had  led  to  the  establishment  of 
the  state  bank  brought  about  a  revival  of  the  bank  of  Illi- 
nois at  Shawneetown,  which  had  remained  dormant  since 
its  suspension  in  1821.  On  February  12,  1835,  an  act  was 
passed  extending-  its  charter  for  twenty  years  from  January 
1st,  1837.  The  directors  were  to  issue  a  call  for  an  install- 
ment of  its  stock,  and  all  stockholders  who  tailed  to  make 
the  payments  in  pursuance  of  the  regular  calls  were  to  for- 
feit their  stock.  The  governor  was  directed  to  sell  the 
$100,000  of  stock  reserved  by  the  charter  frybe  subscribed 
by  the  state.  If  this  stock  could  not  be  sold  as  provided 
for,  it  was  to  remain  on  the  books  of  the  bank  for  subscrip- 
tion. The  legal  rates  of  interest  were  fixed  at  six  per  cent, 
on  loans  for  six  months  or  less,  and  eight  per  cent,  on 
loans  for  over  six  months.  Like  the  state  bank  it  was 
to  pay  in  lieu  of  taxes  one  half  per  cent,  on  its  paid  up 
capital.  The  anxiety  for  a  bank  at  this  time  was  not 
based  on  an  actual  need  for  it.  As  Ford  says,  "the  State 


26 

was  young-.     There  was  no  social  or  business  organization 
upon  any  settled  principles.         *  We  had  no 

cities,  no  trade,  no  manufactures,  and  no  punctuality  in 
the  payment  of  debts.  We  exported  little  or  nothing-.  We 
had  no  surplus  capital,  and  consequently  the  capital  for 
banking-  must  come  from  abroad.  Some  few  then  foresaw, 
what  proved  true,  that  it  would  be  difficult  to  find  directors 
and  officers  for  two  banks  and  numerous  branches,  who, 
from  their  known  integrity,  and  financial  knowledge,  would 
be  entitled  to  the  public  confidence.  The  stockholders 
would  (as  they  did)  reside  abroad  in  other  States.  They 
could  not  supervise  the  conduct  of  the  directory  in  person. 
It  was  probable  that  many  improvident  loans  would  be 
made  and  that  the  banks  would  be  greatly  troubled  in  mak- 
ing their  collection."* 

Yet  the  stock  of  the  new  bank  was  readily,  even  greed- 
ily, taken,  and  the  bank  went  into  operation  in  1835.  At 
that  time  a  strong  desire  to  build  up  a  commercial  emporium 
within  the  state  was  entertained  by  many  citizens;  and 
Alton  was  looked  upon  as  the  place  most  likely  to  fulfil 
that  desire.  As  yet,  however,  nearly  the  whole  trade  of 
Illinois,  Wisconsin,  and  the  upper  Mississippi,  was  con- 
centrated at  St.  Louis.  The  Alton  interest  in  the  bank 
was  sufficient,  in  case  of  division,  to  control  its  manage- 
ment. Accordingly  the  bank  lent  its  aid  towards  building 
up  Alton  and  diverting  the  trade  of  the  north  and  west 
thither.  Godfrey  Oilman  &  Co.  were  supplied  with  $800,000 
with  which  to  get  control  of  the  immense  lead  trade  from 
the  mines  on  Fever  River  and  about  Galena.  Immediately 
the  price  of  lead  rose  from  $2.75  to  $4.25  per  hundred.  To 
exclude  further  competition  the  Alton  merchants  invested 
some  two  or  three  hundred  thousand  dollars  in  mines  and 
smelting  establishments.  But  their  agent  did  not  stop  here. 
He  began  to  deal  in  lots  in  Galena,  and  spent  money  pro- 
fusely. The  effect  was  soon  apparent;  property  in  Galena 
rose  in  a  few  months  more  than  2,000  per  cent.  But  all 
these  exertions  and  lavish  expenditures  to  get  control  of  the 
lead  trade  could  not  keep  up  the  price  of  that  commodity  in 
the  East,  its  destined  market.  The  lead  of  the  Alton 

*Ford's  History  of  Illinois,  p.  173. 


27 

merchants  after  being-  stored  in  New  York  for  a  year  or  two 
awaiting-  a  rise  in  prices,  was  finally  sold  at  a  ruinous 
sacrifice.  Operations  in  produce  proved  equally  disastrous, 
and  it  has  been  estimated  that  the  bank  lost  al tog-ether  in  its 
Alton  operations  nearly  $1,000,000.*  Instead  of  building  up 
Alton  and  giving-  the  bank,  a  monopoly  of  exchanges  on  the 
East,  the  result  of  this  scheme  was  to  crush  Alton  and  bring 
the  bank,  in  its  second  year  of  existence,  to  the  verge  of 
bankruptcy. 

In  the  meantime,  however,  the  situation  was  on  its  sur- 
face sufficiently  promising.  In  the  latter  part  of  1835  the 
bank  stock  was  at  a  premium  of  13  per  cent.  This  fact  led 
the  governor  to  advise  the  legislature,  which  was  then  sit- 
ting in  special  session,  to  subscribe  in  behalf  of  the  state 
for  the  $1,000,000  increase  in  its  capital  which  the  bank 
by  its  charter  was  authorized  to  make.  His  plan  was  then 
to  sell  the  stock  at  a  premium  and  turn  the  profit  into  the 
treasury.  But  the  legislature  did  not  altogether  follow  his 
advice.  On  January  16,  1836,  it  authorized  the  bank  to 
sell  at  public  auction  the  additional  $1,000,000  of  stock 
which  its  charter  permitted  it  to  issue;  to  establish  three 
additional  branches  at  its  option;  and  to  have  fifty  days,  in 
addition  to  the  ten  previously  allowed,  for  the  redemption  of 
its  notes  after  presentation;  but  none  of  these  provisions 
were  to  take  effect  until  the  bank  had  contracted  with  the 
governor  to  redeem  the  Wiggins  loanf  with  the  interest 
that  should  accrue  thereafter  on  the  same.  This  condition 
was  accepted  by  the  bank  on  the  9th  of  the  following  June. 
The  legislature  also  made  the  bank  paper  receivable  in  pay- 
ment of  the  revenue  of  the  state,  and  of  the  college,  school, 
and  seminary  debts. 

By  the  summer  of  1836  land  and  town  lot  speculation 
was  in  full  blast  in  Illinois,  and  the  follies  of  1819  were  re- 
peated on  a  larger  scale.  Chicago  had  been  the  starting 
place,  and  was  still  the  center,  of  this  activity.  Nearly 
every  one  had  town  lots  for  sale,  and  naturally  enough  all 
were  impatient  for  a  great  influx  of  immigration  and  the 

*Ford's  History  of  Illinois,  p.  178.      This  paragraph  is  taken  largely 
from  this  author. 
tSee  p.  20. 


28 

rapid  development  of  the  state.  It  was  believed  that  these 
could  be  obtained  by  a  system  of  improvements.  The  peo- 
ple soon  became  enthusiastic  on  the  subject,  and  an  in- 
ternal improvment  convention  was  assembled  at  the  same 
time  that  the  legislature  of  1836-37  met.  The  convention 
recommended  that  the  legislature  adopt  a  system  of  inter- 
nal improvements  which  "should  be  commensurate  with 
the  wants  of  the  people."  Thus  urged  the  legislature 
passed  an  act  "to  establish  and  maintain  a  general  system 
of  internal  improvements."  The  act  established  what  was 
called  a  Board  of  Fund  Commissioners  and  provided  for  a 
vast  system  of  works  in  the  way  of  improving  navigable 
rivers,  and  constructing  canals  and  railroads.  For  carry- 
ing out  the  proposed  schemes  the  legislature  voted  a 
loan  of  $8,000,000.  The  total  expenses  of  the  government 
of  the  state  from  its  admission  up  to  1836,  did  not  reach  $1,- 
000,000.  Truly  indeed  did  "mere  possibilities  appear  highly 
probable,  and  probabilities  wear  the  livery  of  certainty  it- 
self." 

On  February  28,  1837,  the  Bank  of  Illinois  was  autho- 
rized by  the  legislature  to  borrow  $250,000  and  loan  the 
same  upon  real  estate  security  at  a  rate  not  higher  than  ten 
per  cent.  On  March  2  the  governor  was  instructed  to  sub- 
scribe for  the  $100,000  of  stock  reserved  to  the  state  by  the 
charter  of  the  state  bank  of  Illinois.*  Two  days  later  an 
act  was  passed  increasing  the  capital  stock  of  the  state  bank 
$2,000,000,  to  be  subscribed  wholly  by  the  state,  and  that 
of  the  Shawneetown  bank  $1,400,000,  $1,000,000  to  be  sub- 
scribed by  the  state  and  $400,000  by  private  subscription; 
provided  that  the  consent  of  the  banks  should  first  be  ob- 
tained, f  Ten  per  cent,  of  the  stock  subscribed  was  to  be 
paid  by  the  state  (in  specie)  as  had  been  done  by  private 
stockholders. J  The  fund  commissioners  were  authorized 
to  negotiate  a  loan,  not  exceeding  $3, 000, 000,  for  which  they 
were  to  issue  certificates  of  stock  called  "the  Illinois  bank 
and  International  Improvement  stock."  When  the  increase 
in  the  stock  of  these  banks  was  subscribed  by  the  state,  the 

*See  p.  24.    It  had  not  been  sold. 

tSee  error  as  to  this  in  Davidson  and  Stuve's  History  of  Illinois,  p. 
240. 

tSee  p.  24. 


29 

legislature  was  to  elect  five  additional  directors  for  the 
state  bank  and  nine  for  the  Shawneetown  bank.  This  still 
left  a  majority  of  the  directors  of  each  bank  private 
stockholders,  although  the  state  held  much  the  larger  por- 
tion of  the  stock  of  each.  The  Shawneetown  bank  was 
authorized  to  establish  three  branches  of  discount  and  de- 
posit, one  at  Alton,  one  at  Jacksonville,  and  one  at  Law- 
renceville,  whenever  the  interests  of  the  community  or  bank 
should  require  it.  The  fund  commissioners  might  deposit 
in  any  bank  or  banks  of  the  state,  all  funds  obtained  for  in- 
ternal improvements;  and  the  banks  were  made  the  fiscal 
agents  of  the  state  in  respect  to  all  internal  improvement 
funds.  They  were  to  make  quarterly  reports  of  their  con- 
dition to  the  fund  commissioners,  and  the  legislature  mig-ht, 
by  committee,  make  such  examinations  of  their  affairs  as  it 
deemed  proper.  All  bank  notes  were  made  payable  where 
issued.  It  was  expected  that  the  bank  stock  thus  provided 
would  command  a  premium  of  at  least  ten  per  cent.,  since 
the  first  $1,500,000  of  stock,  offered  in  1835,  had  risen  to  13 
per  cent,  above  par,  and  that  the  state's  share  of  the  stock 
would  yield  a  handsome  dividend.  Accordingly  the  bill  pro- 
vided that  the  dividends  and  profits  accruing-  from  the  stock 
should  be  applied  first  to  payment  of  interest  on  the  loans 
authorized  by  the  same  act;  that  the  balance,  tog-ether  with 
the  premium  on  stock  sold,  should  constitute  a  fund  to  be 
held  inviolable  for  the  payment  of  the  interest  on  the  loans 
authorized  by  the  internal  improvement  act;  and  finally 
that  whatever  balance  of  the  dividends  and  profits  remained 
should  be  deposited  in  the  banks  to  the  account  of  the  fund 
commissioners.  By  another  act  of  the  same  date  the  banks 
were  made  depositories  of  the  state  revenues,  which  they 
were  to  receive,  and,  upon  the  warrants  of  the  auditor,  pay 
out  without  charge. 

The  fact  that  most  of  the  officers  of  the  state  bank  were 
whig-s  caused  it  to  be  regarded  as  a  whig  concern.  Under 
the  leadership  of  judge  Smith,  who  now  pronounced  the 
bank  unconstitutional,  although  he  had  written  its  charter 
and  advocated  its  passage  through  the  legislature,  and 
judge  McRoberts,  receiver  of  public  moneys  at  Danville, 
the  democrats  maintained  a  strong  opposition  to  it.  An 


30 

act  of  Congress  of  the  previous  session  had  provided  that 
the  surplus  revenue  from  the  sale  of  public  lands  mig-ht  be 
deposited  in  the  banks  of  the  various  states.  The  bank 
made  an  effort  to  get  a  share  of  these  deposits,  but  it  was 
so  hated  by  the  democrats,  and  they  made  such  represen- 
tations at  Washington  as  to  its  unsoundness,  that  the  Sec- 
retary of  the  Treasury  refused  its  request.  Its  notes  fell 
below  par  and  were  g-athered  up  and  presented  for  specie, 
which  was  then  paid  into  the  land  office  for  public  lands, 
and  thus  drawn  out  of  the  state.  To  check  in  some  measure 
this  constant  drain  of  specie  the  bank  resorted  to  the  expe- 
dient of  g-etting-  its  notes  in  circulation  as  far  as  possible 
from  the  branch  where  they  were  issued. 

The  state  treasury  had  been  solvent  in  1835,  but  when, 
after  the  old  plan  of  making-  the  bank  the  custodian  of 
the  public  funds  had  been  adopted,  the  bank's  paper  had 
beg-un  to  depreciate,  the  road  to  bankruptcy  was  entered 
upon  and  was  traveled  before  1838. 

By  the  measures  passed  in  the  winter  of  1837  the  banks 
and  the  state  were  inseparably  linked  tog-ether,  and  the  gig-an- 
tic improvement  scheme  involved  both  alike  in  ruin.  This 
scheme  has  a  history  of  its  own  and  can  only  be  mentioned 
here.  A  canal  connecting  Lake  Michig-an  and  the  Illinois 
River  had  been  the  dream  of  every  statesman  since  1820, 
and  its  realization  now  seemed  near  at  hand.  The  first 
difficulty  arose  when  the  bonds  which  the  state  issued  for 
the  canal  loan  were  taken  east  to  be  sold.  To  the  great 
surprise  of  the  commissioners  they  could  not  be  disposed  of. 
In  this  strait  the  banks  came  to  the  rescue  and  took  $2,- 
665,000  of  the  bonds  at  par.  The  Shawneetown  bank  dis- 
posed of  its  share  of  $900,000,  but  the  remaining-  $1,765,000 
of  them  which  fell  to  the  state  bank  were  not  sold  but  were 
used  as  capital  and  the  bank's  business  expanded  accord- 
ingly. The  condition  of  the  Illinois  banks  at  this  time  and 
for  various  years  up  to  1863  as  well,  may  be  seen  from  the 
tables  on  pag-es  55  and  56. 

Within  two  months  after  the  passag-e  of  the  internal 
improvement  act,  and  before  the  scheme  could  be  fairly 
launched,  there  came  the  financial  revulsion  of  1837.  The 
expansion  of  the  banks,  of  which  the  internal  improvement 


31 

craze  had  been  the  chief  cause,  bari  reached  its  widest  limits 
when  the  crash  came.  The  causes  and  history  of  this  panic 
are  too  well  known  to  need  mention  here.  By  May  the 
banks  in  the  surrounding-  states  had  suspended,  and  the  Illi- 
nois banks,  though  solvent,  could  no  longer  stand  the 
strain.  By  their  articles  of  incorporation  they  could  not 
suspend  specie  payments  longer  than  sixty  days  without  for- 
feiting their  charters.  But  they  had  been  made  the  fiscal 
agents  of  the  state,  and  all  the  state  moneys  and  the  internal 
improvement  funds,  amounting  in  all  to  $1,055,604,  were  de 
posited  with  them.  If  the  banks  were  forced  into  liquidation, 
it  would  mean  a  great  loss  to  the  state  and  the  failure 
of  the  whole  internal  improvement  scheme.  To  avoid  this 
catastrophe  the  canal  commissioners  wrote  to  the  governor 
urging  him  to  convene  the  general  assembly  for  the  purpose 
of  relieving  the  banks,  which  they  declared  to  be  perfectly 
solvent,  but  manifestly  unable  to  resume,  or  at  all  events  to 
continue,  specie  payments  while  all  the  other  banks  of  the 
country  were  in  suspension.  A  special  session  was  according- 
ly called  for  July  10.  In  his  message  the  governor  made  a 
statement  of  the  case  without  directly  recommending  that 
suspension  be  legalized,  though  he  did  recommend  a  partial 
repeal  of  the  internal  improvement  act.  The  legislature  legal- 
ized the  suspension,  but  left  the  internal  impiovement  act  in- 
tact. By  an  act  of  July  21,  all  the  state's  bank  stock  was 
pledged  to  redeem  any  loans  made  for  internal  improvement. 
On  the  same  day  that  provision  of  law  which  declared  that  no 
bank  should  refuse  for  sixty  days  to  redeem  its  notes  in  specie 
upon  penalty  of  forfeiting  its  charter,  was  suspended  until  the 
end  of  the  next  general  or  special  session  of  the  general  as- 
sembly; provided  that  each  bank  should  first  agree  to  conform 
to  the  following  conditions:  Make  no  dividend  before  re- 
suming specie  payments;  neither  sell,  dispose  of  nor  pay  out 
any  of  its  specie,  except  for  change,  and  in  sums  under  five 
dollars;  make  monthly  reports  to  the  governor  of  its  condi- 
tion; not  increase  its  circulation  beyond  the  amount  of  capital 
stock  actually  paid  in;  receive  and  pay  out  any  funds  belong- 
ing to  the  state,  free  of  charge;  allow  such  of  its  debtors  as 
were  citizens  and  residents  of  the  state  to  pay  their  debts  in  in- 
stallments of  ten  per  cent,  each,  upon  executing  new  notes 


OK  THE 

UNJV- 


32 

with  approved  security;  and  surrender  its  charter  if  any  of 
these  conditions  were  violated.  The  conditions  were 
promptly  accepted  by  the  banks.  "It  will  be  re- 
membered that  the  legislature,  in  1835,  in  the  law 
incorporating  the  state  banks  of  Illinois,  had  solemnly 
enacted  that  the  legislature  of  the  state  should  never  pass  any 
law  retarding,  staying,  protracting,  or  in  any  wise  suspending 
the  collection  of  any  debt  or  debts  due  the  state  bank.  It 
furnishes  a  somewhat  striking  example  of  the  futility  of  such 
provisions  not  incorporated  into  a  paramount  written  consti- 
tution."* 

At  this  session  complaints  were  made  of  mismanagement 
of  the  canal  funds  by  the  banks,  but  an  examination  by  com- 
mittees produced  no  results. 

By  this  time  party  lines  had  become  closely  drawn  upon 
the  subject  of  the  banks.  The  whigs  supported  them  and  the 
acts  legalizing  suspension,  while  the  democrats  opposed  both. 
The  whigs  regarded  the  banks  as  institutions  of  the  state,  and 
denounced  the  democrats  for  opposing  them  as  disloyal  and 
opposed  to  the  government.  This  bitter  partisanship  was  in  a 
way  a  benefit  to  the  banks,  for  it  gave  them  staunch  and  un- 
swerving friends  among  the  whigs. 

In  his  farewell  message,  delivered  Dec.  24,  1838,  gover- 
nor Duncan  said:  "The  banks  of  our  state,  as  well  as  those 
of  our  sister  states  *  *  *  have  resumed  specie  payments,  and 
are  fully  entitled  to  the  public  applause  and  confidence  they 
are  now  enjoying,  for  the  prudence  and  judgment  they  have 
used  in  sustaining  themselves  under  difficulties  of  so  threaten- 
ing a  nature."!  Certain  members  of  the  general  assembly 
also  warmly  commended  the  action  of  the  banks  in  suspend- 
ing as  a  step  likely  to  conserve  the  best  interests  of  the  state 
and  community.  At  the  very  same  session  governor  Carlin, 
a  Jackson  democrat,  in  his  inaugural  address,  denounced  the 
banks  in  severe  terms,  and  declared  that  no  exigency  could 
ever  justify  the  suspension  of  specie  payments,  and  that  to 
sanction  such  suspension  by  legislation  was  to  legalize  the 
violation  of  law  and  moral  obligation.  He  pointed  out  as  de- 

*Lyman  J.  Gage's  Banking  in  Illinois,  World's  Congress  of  Bankers  and 
Financiers,  p.  421. 

tFord's  History  of  Illinois,  p.  227. 


33 

fects  of  the  banking  system,  "the  difficulty  of  exacting  from 
the  banks  a  strict  and  rigid  compliance  with  the  provisions  of 
their  charters  and  of  compelling  them  by  process  of  law  to 
meet  their  various  obligations  and  contracts;  and  the  impos- 
sibility of  preventing  them  from  using  their  power  and  in- 
fluence to  affect  and  control  the  politics  of  the  country." 

At  the  session  of  the  legislature  in  1838  an  act  was  passed, 
known  as  the  small  note  act,  to  protect  the  state  banks  from 
competition  of  private  bankers.  Several  insurance,  and  other, 
companies,  notably  the  Chicago  Marine  and  Fire  Insurance 
Company,  had  taken  advantage  of  the  privilege  conferred  by 
their  charters  of  loaning  money  and  receiving  it  on  deposit, 
to  issue  certificates  of  deposit,  which  circulated  as  money  and 
were  generally  more  certain  of  redemption  than  bank  notes. 
The  new  law  declared  that  notes  of  a  denomination  less  than 
five  dollars,  issued  by  any  banking  institution  not  chartered 
by  the  state  to  issue  notes,  should  not  be  payable;  that  debts 
incurred  by  receiving  such  notes  should  be  uncollectable ;  and 
that  any  person  passing  them  should  be  liable  to  severe  pun- 
ishment. 

In  March,  1839,  the  power  of  appointing  state  directors 
to  the  banks  was  transferred  from  the  legislature  to  the  gov- 
ernor, and  the  Shawneetown  bank  was  authorized  to  establish 
two  additional  branches.  At  the  same  time  a  joint  resolution 
was  passed  by  the  general  assembly  denouncing  the  action  of 
the  general  government  in  refusing  to  make  the  Illinois  banks 
depositories  of  the  public  money,  and  depositing  it  instead  in 
the  bank  of  Missouri;  an  action  which,  according  to  the  reso- 
lution, was  manifestly  injurious  to  the  interests  of  the  people 
of  the  state. 

In  September,  1839,  upon  the  promise  of  governor  Carlin 
to  deposit  $500,000  of  internal  improvement  bonds  as  col- 
lateral security,  the  Shawneetown  bank  loaned  the  commis- 
sioners of  public  works  $200,000.  The  governor's  promise 
was  never  fulfilled.  Ford  says*  that  this  sum,  together  with 
$80,000  previously  loaned  for  building  the  state  house,  was 
never  repaid.  By  an  act  of  Feb.  26,  1841,  the  legislature  di- 
rected the  debt  to  be  paid  in  auditor's  warrants  of  a  denomi- 
nation  of  $10,000,  at  6  per  cent,  interest,  and  according  to  a 
*History  of  Illinois,  p.224. 


34 

communication  from  an  agent  of  the  bank  to  the  governor  in 
January,  1843,  tne  full  amount  was  held  by  the  bank  at  that 
time  in  state  bonds  and  scrip.* 

When  the  legislature  met  in  December,  1839,  the  crisis 
of  1839  had  already  come  and  the  banks  had  once  more  sus- 
pended specie  payment.  Governor  Carlin  again  attacked  the 
banks,  especially  the  state  bank,  on  much  the  same  grounds  as 
before.  He  declared  that  the  banking  system  of  the  state  was 
at  war  with  the  genius  of  a  free  government,  and  was  radical- 
ly defective ;  that  the  state  bank  having  set  at  defiance  the  will 
of  the  community  by  the  suspension  of  specie  payments,  no 
longer  merited  any  favors  at  the  hands  of  the  legislature. 
Therefore  he  recommended  that  no  law  be  passed  to  legalize 
the  suspension  by  the  bank,  and  that  a  rigid  and  thorough  ex- 
amination be  instituted  into  its  condition.  Such  an  examina- 
tion was  at  once  ordered  by  the  legislature.  Most  of  the  in- 
quiries made  by  the  investigating  committee  were  satisfactor- 
ily answered  by  the  bank.  It  appeared,  however,  that  the  bank 
directors  had  in  general  been  the  largest  borrowers ;  that  God- 
frey Gilman  &  Co.,  of  Alton,  had  at  one  time  had  loans  to 
the  amount  of  $800,748;  that  Samuel  Wiggins,  of  Cincin- 
nati, having  orginally  taken  $200,000  of  bank  stock,  had  ob- 
tained loans  to  the  amount  of  $108,000  upon  the  pledge  of  his 
stock  and  had  used  the  money  thus  obtained  to  meet  his  in- 
stallments on  the  stock;  that  the  Chicago  branch, though  with- 
out the  knowledge  of  the  parent  bank,  had  been  engaged  in 
the  pork  trade;  and  that  the  parent  bank  had  made  a  venture 
in  lead. 

When  this  report  was  received  the  legislature,  in  which 
the  bank  had  many  friends,  again  legalized  its  suspension  of 
specie  payments,  notwithstanding  the  governor's  recommen- 
dation to  the  contrary.  The  time  limit  and  the  conditions  of 
this  suspension  were  the  same  as  had  been  made  in  1837, 
with  the  additional  proviso  that  the  banks  should  make  no 
loan  on  a  pledge  of  their  own  stock,  nor  suffer  any  person  to 
become  indebted  to  them  for  over  $10,000  on  his  own  paper, 
or  $25,000  on  bills  of  exchange.  The  Chicago  branch  was 
ordered  removed,  and  on  the  I4th  of  the  following  July  it  was 
*  House  Reports,  1842-43,  p.  202. 


35 

transferred  to  Rockport.  The  other  branches  in  operation  at 
this  time,  and  located  at  Galena,  Jacksonville,  Belleville, 
Mount  Carmel,  Alton,  Quincy  and  Vandalia,  were  all  con- 
tinued. The  internal  improvement  law  was  repealed  and 
operations  under  it  stopped.  The  state  debt  was  over  $10,000- 
ooo,  and  since  the  treasury  was  completely  bankrupt  interest 
on  it  had  to  be  met  by  further  loans. 

The  legislature  of  1840-41  was  convened  two  weeks  ear- 
lier than  usual  in  order  to  make  some  provisions  for  paying 
the  interest  on  the  state  debt.  The  debt  by  this  time 
amounted  to  $13,643,601,  and  the  annual  interest  on  it  greatly 
exceeded  the  state's  revenue.* 

In  his  message  the  governor  presented  the  alternatives  of 
mcrasing  taxation  or  increasing  the  state's  banking  capital, 
but  strongly  advised  against  the  latter.  The  committee  on 
finance,  however,  advised  that,  since  there  existed  on  the  part 
of  the  people  such  unwillingness  to  pay  taxes,  the  bank  capital 
be  increased  to  six  millions.  This  increase,  they  thought, 
would  produce  a  reaction  in  business  and  enable  the  banks  to 
resume  and  sustain  themselves,  and  even  declare  a  dividend 
of  perhaps  nine  per  cent.  This  dividend  would,  they  declared, 
pay  the  interest  not  only  on  the  sum  invested,  but  also  on  the 
larger  part  of  the  state's  debt.  "Taxation  for  any  public  en- 
terprise will  be  entirely  avoided,  by  gradually  increasing  the 
banking  capital  as  the  commerce  and  the  population  of  the 
state  demands."  Very  fortunately  the  recommendation  of  the 
committee  was  rejected  and  increased  taxes  were  voted,  the 
immediate  emergency  having  been  met  by  the  hypothecation 
of  state  bonds. 

The  legislature  was  democratic  and  therefore  opposed  to 
permitting  the  banks  to  continue  in  suspension.  These  institu- 
tions had  declared  their  ability  and  intention  to  resume  on  Jan- 
uary, 15, 1841, the  date  fixed  for  resumption  generally  through- 
out the  United  States,  but  their  enemies  were  more  anxious 
to  destroy  them  than  to  have  them  resume.  Governor  Carlin, 
in  his  message,  repeated  his  former  denunciations  of  the  banks. 
It  will  be  remembered  that  suspension  had  been  legalized  in 
1839  to  extend  to  the  end  of  the  next  regular  or  special  ses- 
*Governor's  Message,  1840. 


36 

sion.  The  democrats  now  contended  that  that  part  of  this  ses- 
sion preceding  the  time  for  the  regular  session  to  begin,  con- 
stituted a  special  session,  and  that  if  it  were  adjourned  sine  die 
the  banks  would  have  to  resume  specie  payments  or  forfeit 
their  charters.  The  whigs  claimed  that  the  whole  was  but 
one  session,  and  attempted  to  defeat  the  adjournment  sine  die, 
by  breaking  a  quorum.  To  prevent  this  the  democrats  closed 
the  doors,  whereupon  several  whigs,  Abraham  Lincoln 
among  them,  leaped  out  of  the  windows.  Enough  were  de- 
tained, however,  to  make  a  quorum,  the  legislature  adjourned, 
and  the  democrats  believed  that  the  banks  were  abolished. 
But  such  was  not  the  case,  for  though  the  banks  failed  to  re- 
sume even  by  January  15,  the  date  they  themselves  had  set 
for  the  resumption,  before  the  end  of  the  regular  session  an 
act  was  passed  which  set  aside  any  forfeiture  that  had  been 
caused  by  the  failure  of  the  banks  to  redeem  their  notes.  The 
same  act  legalized  indefinite  suspension  on  the  usual  condi- 
tions, but  with  the  additional  proviso  on  the  part  of  the  state 
bank  that  it  purchase  at  par  $200,000  of  state  bonds  in  semi- 
annual installments  of  $50,000  each.  The  Chicago  branch 
was  reopened.  Debtors  were  again  allowed  to  pay  their  debts 
by  executing  new  notes  and  paying  a  ten  per  cent,  installment, 
and  the  bank  was  given  the  privilege  of  issuing  notes  in  de- 
nominations of  one,  two  and  three  dollars  until  January  ist, 
1843.  At  this  session,  also,  the  singular  condition  was  imposed 
upon  a  manufacturing  company  in  the  grant  of  its  charter, 
that  all  sums  received  above  $100  must  be  deposited  in  the 
state  bank  at  Vandalia.  It  was  believed  that  the  privilege  of 
issuing  small  notes  would  enable  the  banks  to  make  an  earlier 
resumption.  Of  course  it  had  the  opposite  effect. 

The  change  of  the  legislature  from  a  hostile  to  a  friendly 
attitude  toward  the  bank  may  be  accounted  for  by  the  fact 
that  since  the  bank  was  the  custodian  of  the  state's  funds  and 
revenues — was  practically  the  state  treasury — the  members 
were  entirely  dependent  upon  it  for  their  pay.  Auditor's 
warrants,  issued  at  fifty  cents  on  the  dollar,  could  be  cashed 
only  at  the  bank,  which  fact  made  many  of  the  erstwhile  hostile 
now  desirous  of  conciliating  that  institution.  Many  direct 
charges  of  corruption  and  bribery  were  made  against  the  bank 


37 

at  the  time  and  have  been  made  since  but  they  are  without 
absolute  proof. 

The  financial  condition  of  the  state  at  this  time  is  revealed 
by  these  words  in  the  auditor's  report  for  December  5,  1842: 
''Toward  the  close  of  the  last  session  of  the  legislature, 
when  the  state  bank  refused  to  redeem  the  auditor's  warrants, 
the  members  of  the  general  assembly,  after  having  been  in 
session  about  three  months,  were  unpaid  and  without  means; 
the  judges  and  other  officers  were  in  a  similar  condition,  and 
the  credit  of  the  state,  at  the  same  time,  had  sunk  so  low  that 
the  public  documents  could  not  be  obtained  from  the  post 
office,  until  the  officers  themselves  became  personally  re- 
sponsible for  the  postage.  In  this  extremity  the  state  bank 
was  able  to  dictate  its  own  terms  to  the  legislature  and  extort 
from  that  body  whatever  concessions  it  chose  to  demand.  "*j 

The  whigs  claimed  that  this  deplorable  condition  of 
affairs  was  caused  by  a  loss  of  confidence  which  the  vindic- 
tive opposition  of  the  democrats  to  the  banks  had  brought 
about.  "According  to  their  views,"  says  Ford,*  "if  the  banks 
owed  five  times  as  much  as  they  were  able  to  pay,  and  if  the 
people  owed  to  each  other  and  to  the  banks  more  than  they 
were  able  to  pay,  and  yet  if  the  whole  people  could  be  per- 
suaded to  believe  the  incredible  falsehood  that  all  were  able 
to  pay,  this  would  be  a  revival  of  confidence  rather  than  the 
restoration  of  a  general  delusion." 

The  banks  soon  passed  the  stage  where  confidence  could 
aid  them.  The  state  bank,  in  order  to  regain  the  favor  of  the 
legislature  and  the  people,  which  it  knew  it  had  forfeited, 
taxed  its  resources  to  redeem  outstanding  auditor's  warrants 
to  the  amount  of  $300,000  Its  notes,  which  had  been  at  a  dis- 
count ever  since  the  United  States  had  refused  to  make  it  a 
depository  for  the  public  money,  had  gradually  sunk  to 
twelve  and  fifteen  per  cent,  below  par.  Finally  the  action  of 
certain  of  the  bank's  directors,  contractors  to  build  the 
Northern  Cross  railroad,  brought  on  the  culmination  of  its 
misfortunes.  For  building  the  railroad  they  were  to  be  paid 
in  canal  bonds,  which  at  that  time  were  unsalable.  To  ob- 

*History  of  Illinois,  p.  227. 


38 

tain  loans  from  the  bank  they  defeated  a  proposition  not  to 
prevent  expansion  during  suspension,  and  declared  that  the 
bank  could  not  issue  an  excess  of  paper  while  in  suspension. 
Having  obtained  loans  themselves,  they  were  compelled  to 
vote  loans  to  others  also.  Greater  tension  was  thus  put  upon 
the  bank's  credit,  and  its  notes,  increased  in  volume,  sank 
still  lower.  At  length,  in  February,  1842,  the  state  bank  of 
Illinois,  with  a  circulation  of  $3,000,000,  "exploded  with  a 
great  crash,  carrying  wide-spread  ruin  all  over  the  state  and 
into  the  neighboring  states  and  territories."  In  the  following 
June  the  bank  of  Illinois,  at  Shawneetown,  to  which  also  the 
state  was  heavily  indebted,  with  a  circulation  of  about  $i,- 
700,000,  likewise  collapsed.  The  notes  of  these  banks,  hav- 
ing been  at  a  slight  discount  for  several  years,  had  of  course 
banished  all  good  money  from  the  country  so  that  now  the 
people  were  left  without  circulating  medium.  This  had  to  be 
obtained  from  other  states  by  the  then  tardy  process  of  trade 
and  commerce.  "The  banks  and  the  state  had  been  partners 
in  speculation  and  now  they  were  partners  in  embarrassment. 
The  revenues  were  payable  in  notes  of  these  broken  banks; 
the  state  paid  no  interest  on  her  bonds,  of  which  the  banks 
held  a  large  amount,  and  they  were  worth  in  the  market  but 
fourteen  cents  on  the  dollar."*  Indeed,  after  July,  1841,  no 
attempt  was  made  to  pay  the  interest  on  the  public  "debt. 
For  this  reason,  and  from  a  lack  of  information  as  to  its 
cause,  the  inhabitants  of  the  state  came  to  be  regarded  by 
the  citizens  of  other  states  as  dishonest. 

Towards  the  end  of  1842  the  bank  paper  had  fallen  to 
one-third  its  face  value,  business  was  stagnant,  immigration 
had  ceased,  and  barter  had  to  be  resorted  to  to  procure  the 
necessaries  of  life.  Governor  Ford  thus  sums  up  the  situa- 
tion, as  it  was  when  the  democrats  elected  him  to  the  guber- 
natorial chair  in  1842  :  "The  domestic  treasury  of  the  state 
was  indebted  for  the  ordinary  expenses  of  government  to  the 
amount  of  about  $313,000.  Auditor's  warrants  on  the  treas- 
ury were  selling  at  fifty  per  cent,  discount,  and  there  was  no 
money  in  the  treasury  whatever;  not  even  to  pay  postage  on 
letters.  The  annual  revenues  applicable  to  the  payment  of 
*Davidson  &  Stuve's  History  of  Illinois,  p,  425. 


39 

ordinary  expenses,  amounted  to  about  $130,000.  The  treas- 
ury was  bankrupt;  the  revenues  were  insufficient;  the  people 
were  unable  and  unwilling  to  pay  high  taxes;  and  the  state 
had  borrowed  itself  out  of  all  credit.  A  debt  of  near  fourteen 
million  dollars  had  been  contracted  for  the  canal,  railroads 
and  other  purpose.  The  currency  of  the  state  had  been  an- 
nihilated; there  was  not  over  two  or  three  hundred  thousand 
dollars  in  good  money  in  the  pockets  of  the  whole  people, 
which  occasioned  a  general  inability  to  pay  taxes.  The 
whole  people  were  in  debt  to  the  merchants;  nearly  all  of 
whom  were  indebted  to  the  banks,  or  to  foreign  merchants; 
and  the  banks  owed  everybody  ;and  none  were  able  to  pay."* 

What  to  do  with  the  banks  was  therefore  the  problem 
which  confronted  the  legislature  of  1842.  Governor  Carlin 
in  his  valedictory  message  recommended  that  their  charters 
be  unconditionally  repealed  and  the  banks  forced  into 
liquidation.  This  plan,  though  manifestly  unjust,  was  advo- 
cated by  the  group  of  ultra-democrats,  and  was  sure  of  popu- 
lar favor,  for  the  banks  had  made  themselves  so  odious  by 
their  many  delinquencies  that  the  people  were  ready  to 
countenance  the  most  extreme  measures  against  them.  Most 
zealous  among  the  advocates  of  repeal  was  Lyman  Trum- 
bull,  secretary  of  state,  and  he  was  joined,  after  some  hesita- 
tion, by  Stephen  A.  Douglas  .  The  adoption  of  this  plan 
meant  however  the  probable  loss  of  the  $3,100,000  of  bank 
stockf  held  by  the  state,  and  governor  Ford  in  his  inaugural 
message  favored  some  sort  of  compromise.  It  was  evident 
that  the  connection  of  the  banks  with  the  state  ought  to  be 
severed,  and  the  governor  thought  that  some  arrangement 
could  be  made  by  which  the  state  could  get  back  the  $2,665,- 
ooo  in  bonds  which  had  been  issued  to  them.  He  recom- 
mended that,  if  the  banks  refused  or  were  unable  to  resume 
specie  payments  at  an  early  day,  the  legislature  provide  for 
winding  up  their  affairs  promptly  and  withdrawing  their 
notes  from  circulation,  or  take  some  other  measure  that 
would  "relieve  the  country  from  the  curse  and  blight  of 
broken  banks,  and  their  depreciated  paper." 

*History  of  Illinois,  p.  278. 
tSee  p.  28. 


40 

By  an  act  of  January  24,  1843,  tne  state  bank  was  given 
four  years  in  which  to  wind  up  its  affairs,  a  bank  commis- 
sioner to  represent  the  state  was  to  be  appointed  by  the  gov- 
ernor with  the  consent  of  the  senate,  and  the  bank  was  to  go 
into  immediate  liquidation  and  pay  out  its  specie  pro  rata 
among  its  depositors  and  note  holders,  with  the  exception  of 
$15,000  reserved  to  pay  the  expenses  of  settling  its  affairs.  It 
was  also  to  issue  certificates  of  indebtedness  for  the  residue  of 
the  respective  obligations,  these  certificates  to  be  receivable 
for  debts  due  the  bank  or  property  purchased  of  it.  The 
specie  obtained  in  the  collection  of  debts  was  likewise  to  be 
paid  out  pro  rata  to  creditors  at  the  end  of  every  twelve 
months,  and  debtors  who  would  pay  one-fifth  of  their  loans 
with  all  interest  and  costs,  were  to  be  allowed  to  renew  the 
same  from  time  to  time  by  executing  new  notes.  The  bank 
was  to  deliver  to  the  governor,  within  five  days,  state  bonds, 
scrip,  and  other  evidences  of  debt  equal  to  $2,050,000,  and 
was  to  receive  in  return  $2,050,000  of  its  stock  held  by  the 
state,  the  remaining  $50,000  to  be  reserved  until  the  bank's 
final  dissolution.  No  execution  was  to  be  levied  upon  specie 
in  possession  of  the  bank  so  long  as  its  officers  complied  with 
the  rules  concerning  the  same;  all  banking  privileges  other 
than  those  necessary  to  wind  up  its  business  were  to  be  with- 
drawn, no  bank  property  was  to  be  sold  for  less  than  two- 
thirds  of  its  appraised  value;  and  finally,  the  bank  was  re- 
quired, within  three  days,  to  file  its  acceptance  of  these  pro- 
visions with  the  secretary  of  state. 

An  act  "to  put  the  bank  of  Illinois  into  liquidation," 
passed  February  25,  1843,  and  to  go  into  effect  on  March  3 
following,  deserves  some  mention,  though  it  was  suspended 
by  another  measure  of  the  same  date  and  never  went  into 
force.  That  **  was  arbitrary  and  severe  as  well  as  without 
due  regard  to  the  rights  of  private  stockholders  will  be  seen 
from  some  of  its  provisions.  The  bank's  charter  was  to  be 
repealed,  and  all  its  estate  was  to  vest  in  three  commissioners, 
appointed  by  the  governor,  who  were  to  proceed  direct  to 
Shawneetown  and  take  possession  of  the  banking  house  and 
all  goods  and  chattels,  credits,  cash,  effects,  and  bank  bills 
belonging  to  the  bank;  all  specie  was  to  be  paid  out  pro  rata 


41 

among  creditors  and  the  other  property  disposed  of  for  their 
benefit;  if  resistance  was  offered  the  commissioners  were  em- 
powered to  summon  the  posse  comitatus  to  their  aid,  and  any 
person  so  resisting  was  declared  a  felon  and  liable  to  im- 
prisonment for  ten  years.  It  is  plain  that  this  act  was  in- 
tended chiefly  as  a  threat  to  coerce  the  bank  into  compromis- 
ing, for  on  the  same  day  another  bill,  entitled  "an  act  to  re- 
duce the  public  debt  one  million  dollars  and  put  the  bank  of 
Illinois  into  liquidation,"  was  passed.  This  measure  was 
similar  to  the  one  for  closing-  the  state  bank  and  provided 
that  the  bank  should  turn  over  to  the  state  $1,000,000  of  state 
liabilities,  half  in  five  days  and  half  in  twelve  months,  and 
should  receive  from  the  governor  in  return  an  equal  amount 
of  its  stock,  which  the  state  held.  On  acceptance  of  these 
provisions  the  act  "to  put  the  bank  of  Illinois  into  liquida- 
tion" was  to  be  suspended  for  four  years. 

By  these  acts  the  public  debt  was  reduced  by  $3,050,000. 
The  action  of  the  state  in  cancelling  $3,050,000  of  its  bonds 
by  a  transfer  of  an  equal  amount  of  bank  stock  by  legislative 
action  has  been  criticised  as  not  equitable  towards  the  bill- 
holders,  or  towards  the  private  stockholders  who  had  paid 
cash  for  their  stock.  Certainly  if  an  individual  who  bought 
bank  stock  in  1837  had  paid  for  it  in  his  notes,  as  the  state  did 
in  bonds,  he  would  not,  after  the  bank  had  been  acknowl- 
edged insolvent,  have  been  allowed  to  take  them  up  by  a  re- 
turn of  the  stock.* 

But  meanwhile  others  than  the  state  were  taking  care  of 
their  interests.  Prior  to  this  legislation,  certain  speculators 
bought  the  controlling  interest  in  the  bank  and  had  them- 
selves elected  directors.  Then  they  secretly  borrowed  $100,- 
ooo  of  its  specie,  transmitted  it  to  New  York,  and  bought  at 
thirty  cents  on  the  dollar  $333,000  of  the  $804,000  of  interest 
bonds  which  had  been  illegally  hypothecated  with  brokers 
there  by  the  fund  commissioner  in  1841.  They  then  paid  with 
these  bonds  the  $100,000  of  specie  which  they  had  borrowed, 
and  their  stock  notes  which  the  bank  held.  After  the  bonds  had 
passed  into  the  possession  of  the  bank,  they  were  tendered  to 
the  governor  in  1844  in  exchange  for  stock  according  to  the 

*Brown's  History  of  Illinois,  p.  442. 


42 

liquidation  law.  At  first  the  governor  refused  to  receive  them, 
inasmuch  as  a  law  had  been  passed  for  the  settlement  of  the 
bonds  hypothecated  in  New  York;  but  later,  when  it  became 
apparent  that  these  bonds  had  been  widely  scattered  and  the 
law  could  not  be  complied  with,  he  accepted  them  on  condi- 
tions subject  to  the  approval  of  the  legislature.  That  body 
would  not  at  first  ratify  the  contract,  but  later,  in  1847,  com- 
promised by  receiving  the  bonds  at  forty-eight  cents  on  the 
dollar.* 

Subsequently  the  state  bank  of  Missouri,  jointly  with 
several  other  creditors,  brought  a  chancery  suit  in  the  United 
States  Court  for  the  District  of  Illinois  against  the  bank  and 
its  officers  and  agents.  By  the  decree  in  this  case  three  re- 
ceivers were  appointed  to  take  charge  of  the  bank's  assets, 
make  sale,  and  apply  the  proceeds  in  payment  of  its  debts 
and  in  redemption  of  its  issues,  and  to  settle  its  affairs  gen- 
erally. But  one  of  the  trustees  qualified,  and  upon  his  death 
judge  Thomas,  of  Jacksonville,  was  appointed  in  his  place, 
and  acted  in  that  capacity  about  twenty  years.  In  1871  he 
remitted  for  cancellation  to  the  clerk  of  the  United  States  Cir- 
cuit Court,  at  Chicago,  who  had  been  appointed  a  special 
auditor,  the  last  of  the  notes  and  certificates,  amounting  to 
about  $700.  f 

The  charter  of  the  Cairo  bank,  which,  it  will  be  remem- 
bered, had  been  granted  in  1818,  but  not  brought  into  ex- 
istence until  1836,  was  repealed  and  the  bank  put  into  liquida- 
tion on  March  4,  1843.  The  institution  was  under  the  man- 
agement of  the  Cairo  City  and  Canal  Company  which  had 
come  into  possession  of  some  of  the  lands  mentioned  in  the 
charter  of  the  City  and  Bank  of  Cairo  of  1818,  and  thereby 
claimed  the  right  to  exercise  banking  functions,  although  its 
own  charter  expressly  prohibited  all  banking  powers.  Upon 
this  claim  it  established  a  branch  at  Kaskaskia,  issued  notes, 
and  carried  on  a  general  banking  business  for  a  few  years, 
but  suspended  in  1839  and  did  not  again  resume.  No  com- 
promise was  offered  it,  but  all  its  property  was  vested  in  a 
trustee  with  the  largest  possible  powers  and  with  orders  to 

*Davidson  &  Stuye's  History  of  Illinois,  p.  4JJ6. 
tlbid. 


43 

collect  the  assets  and  pay  them  out  pro  rata  as  soon  as  pos- 
sible. 

This  was  the  end  of  banks  in  Illinois  owned  in  whole  or 
in  part  by  the  state.  At  once  affairs  began  to  brighten;  audi- 
tor's warrants  rose  to  85  and  90  cents,  and  state  bonds  from 
14  to  40  cents;  immigration  began  again  and  a  period  of 
great  prosperity  followed.  Various  causes  contributed  to 
bring  about  this  result,  th  ough  governor  French  in  his  in- 
augural message  in  1846  attributed  it  wholly  to  the  liquida- 
tion of  the  banks.  And  it  is  certainly  true  that  throughout 
the  period  of  their  connection  the  banks  and  the  state  had 
proven  "a  mutual  curse." 


FOURTH  PERIOD:  FREE,  OR  STOOK, 
BANKS,  1851-1863. 


From  1843  to  1851  there  were  no  banks  of  issue  in  Illi- 
nois. The  old  banks  were  being  wound  up  and  various  laws 
were  passed  by  the  legislatures  of  1846-47,  1848-49,  and 
1850-51,  to  expedite  and  direct  their  dissolution.  The  lead- 
ing political  party  of  the  state,  the  democratic,  held,  and  in 
its  platform  of  1845  declared,  that  the  state  ought  not  to  in- 
corporate or  charter  either  state  banks  or  any  other  banking 
institutions  whatever.  In  1847  a  convention  was  held  to 
draft  a  new  constitution,  which  was  submitted  to  the  people 
and  adopted  by  them  in  1848.  The  democratic  papers  of  the 
state  urged  that  the  constitution  be  made  to  forbid  banking 
institutions,  and  an  article  was  proposed  in  the  convention 
which  forbade  the  legislature  to  create  any  bank  or  authorize 
the  issuing  of  bank  paper,  and  required  it  to  prohibit  by 
adequate  penalties  the  circulation  of  any  bank  paper  within 
the  state.  This  proposition  was  defeated  by  a  single  vote, 
and  the  provisions  finally  inserted  on  the  subject  were  much 
milder.  They  read  as  follows:* 

"No  state  bank  shall  hereafter  be  created,  nor  shall  the 

state  own  or  be  liable  for  any  stock  in  any  corporation  or 

joint  stock  association  for  banking  purposes  to  be  hereafter 

created.     The    stockholders    in    every    corporation   or    joint 

*Davidson  &  Stuve's  History  of  Illinois,  p.  426. 


44 

stock  association  for  banking  purposes  issuing  bank  notes, 
or  any  kind  of  paper  credits  to  circulate  as  money,  shall  be  in- 
dividually responsible,  to  the  amount  of  their  respective 
share,  or  shares,  of  stock  in  any  such  corporation  or  associa- 
tion, for  all  its  debts  and  liabilities  of  every  kind.  No  act  of 
the  general  assembly,  authorizing  corporations  or  associa- 
tions with  banking  powers,  shall  go  into  effect,  or  in  anv 
manner  be  in  force,  unless  the  same  shall  be  submitted  to 
the  people  at  the  general  election  next  succeeding  the  pas- 
sage of  the  same,  and  be  approved  by  a  majority  of  all  the 
votes  cast  at  such  election  for  and  against  such  law." 

By  the  end  of  1848  the  establishment  of  a  banking  sys- 
tem was  again  agitated.  It  was  proposed  to  divide  the  state 
into  three  banking  districts  with  a  board  of  bank  trustees  for 
each.  Circulating  notes  were  to  be  issued  to  banking  asso- 
ciations upon  deposit  of  United  States  stock  and  a  certain 
portion  of  gold  as  security.  The  scheme,  however,  failed  of 
adoption,  though  in  respect  to  security  it  was  certainly  pre- 
ferable to  the  one  afterwards  adopted. 

In  his  message  in  1851,  governor  French  took  strong 
ground  against  the  revival  of  banks  in  the  state.  This  did 
not,  however,  deter  the  legislature  from  passing  an  act  to  es- 
tablish a  general  system  of  banking.  li  was  modeled  after 
the  banking  law  of  New  York.  It  provided  that  any  number 
of  persons  might  form  a  banking  association  upon  deposit- 
ing with  the  auditor  at  least  $50,000  of  United  States  stocks 
on  which  full  interest  was  anually  paid,  or  Illinois  stocks 
valued  at  twenty  per  cent,  less  than  they  had  been  sold  for 
in  New  York  for  six  months  previous,  no  stock  to  be  valued 
above  its  par  value,  or  its  market  value  at  the  time  of  de- 
posit. The  persons  making  this  deposit  were  to  receive 
from  the  auditor  notes  of  denominations  above  one  dollar  to 
an  amount  equal  in  value  to  the  stocks  deposited.  The  issu- 
ing of  notes  by  the  auditor  in  excess  of  the  amount  of  stocks 
deposited  was  forbidden  under  heavy  penalties;  and  stock- 
holders or  creditors  to  the  amount  of  three  thousand  dollars 
or  more  might  at  any  time  apply  to  the  circuit  court  for  a 
judicial  examination  of  the  bank.  The  auditor  was  to  deliver 
to  the  bankers  an  amount  of  their  deposited  stocks  equal  to 


45 

the  amount  of  any  notes  returned  to  him  for  cancellation. 
Notes  were  redeemable  only  at  the  bank  where  issued.  When 
any  bank  refused  to  pay  its  notes  on  demand  the  auditor  was 
to  sell  the  pledged  bonds  at  auction  in  New  York,  and  pay 
the  notes,  with  12  1-2  per  cent,  interest  as  damage  from  the 
proceeds.  The  bank  was  to  be  prohibited  from  exercising  fur- 
ther banking  privileges,  its  assets  were  to  be  taken  by  a  receiver 
and  applied  first  to  the  redemption  of  notes,  second,  to  the 
payment  of  other  indebtedness,  and  third,  to  the  payment  of 
stockholders.  If  the  stocks  and  other  effects  of  the  bank 
were  insufficient  to  redeem  its  notes,  the  stockholders  were 
to  be  liable  in  their  private  capacities  to  the  amount  of  their 
shares.  A  board  of  three  commissioners  was  provided  for, 
who  were  to  examine  the  banks  annually  and  inspect  the  se- 
curities held  by  the  auditor;  if  any  of  these  had  depreciated, 
additional  security  was  to  be  required.  The  officers  of  each 
bank  were  to  make  quarterly  statements  of  the  condition  of 
the  bank  to  the  auditor.  A  bank  might  go  into  voluntary 
liquidation  after  redeeming  90  per  cent,  of  its  notes  and  de- 
positing specie  for  the  remainder. 

Upon  the  passage  of  this  bill  banks  and  banking  at  once 
became  again  a  source  of  political  strife.  The  bill,  though 
passed  by  a  democratic  legislature,  was  returned  by  gov- 
ernor French,  himself  a  democrat,  with  a  strongly  worded 
veto  message.*  Despite  the  governor's  objections,  however, 
the  bill  passed  both  houses  on  the  same  day  it  was  returned, 
February  15,  and  became  a  law  subject  to  the  approval  of  the 
people  at  the  next  general  election. 

There  was  great  contrariety  of  opinion  as  to  the  prob- 
able effect  of  the  new  law.  Some  feared  that  the  provisions 
of  the  act  were  so  stringent  that  few  banks  would  be  organ- 
ized under  it;  others  "ran  wild  after  the  discovery  of  the  new 
and  safe  scheme  whereby  the  capitalist,  contrary  to  Frank- 
lin's aphorism,  might  eat  his  cake  and  have  his  cake — invest 
his  money  in  bonds,  deposit  them,  and  from  the  hands  of  the 
auditor  have  his  money  again  and  own  his  bonds  too."f 
The  currency  of  the  state  was  already  made  up  largely  of 

*House  Reports,  1851,  p.  493. 

tDavidson  &  Stave's  History  of  Illinois,  p.  586. 


46 

notes  issued  by  similar  banking  institutions  of  other  states 
and  the  advocates  of  the  measure  urged  that  this  state  should 
supply  its  own  currency  and  derive  the  benefits  to  trade  and 
commerce  which  banks  could  confer.  In  order  to  have  the 
law  voted  on  as  early  as  possible  and  yet  at  general  election, 
as  the  constitution  required,  the  general  assembly  resorted  to 
the  expedient  of  legislating  all  the  county  treasurers  out  of 
office  and  ordering  a  new  election;  and  at  this  election,  in 
November,  1851,  after  the  friends  and  opponents  of  the  law 
had  thoroughly  canvassed  the  state,  it  was  adopted  by  a  vote 
of  37,626  to  31,405. 

At  the  time  this  law  went  into  operation  Illinois  was 
growing  at  a  marvelous  rate  and  banking  facilities  and  a 
bank  currency  were  certainly  needed  by  her  business  interests. 
Within  a  year  seventeen  banks  were  started,  with  a  cir- 
culation of  $1,351,788.  The  stocks  deposited  with  the  audi- 
tor to  secure  the  circulation  were  chiefly  Illinois  canal,  in- 
terest, and  internal  improvement,  bonds;  the  remainder  being 
Virginia  6's,  and  Ohio,  Missouri,  Kentucky,  and  California 
bonds.  This  addition  to  the  circulating  medium  produced  a 
rapid  expansion  of  business  and  enhanced  prices.  A  specula- 
tive tendency  soon  appeared  and  some  newspapers  declared 
that  the  experience  of  1819  and  1837  was  about  to  be  re- 
peated, but  the  expansion  at  this  time  was  largely  due  to  nat- 
ural and  legitimate  causes.  Illinois  was  at  the  height  of  pros- 
perity. A  vast  tide  of  immigration  was  pouring  in,  railroads 
and  other  improvements  were  being  carried  rapidly  forward, 
and  commerce  was  developing  accordingly.  This  rapid 
growth,  however,  soon  led  to  over-expansion,  which,  with 
other  causes  produced  the  panic  of  1854.  This  panic  was  es- 
pecially felt  in  the  west  and  northwest.  "In  Ohio,  Illinois, 
Michigan,  Wisconsin,  Iowa,  and  Missouri  *  *  *  a  large  circu- 
lation of  bank  notes,  mostly  of  the  free  banks,  had  been  ob- 
tained through  expenditures  for  railroad  purposes,  and  the 
general  expansion  of  business.  When  the  contraction  began, 
this  circulation  came  in  rapidly  and  found  the  banks  wholly 
u  nprepared  to  meet  it."*  The  Illinois  banks  by  drawing-  on  their 

*Hunt's  Merchants'  Magazine,  Dec.  1854.    Summer's  History  of  Ameri- 
can Currency,  p.  178. 


47 

balances  in  the  east  and  borrowing  to  the  extent  of  their  credit 
managed  to  continue  payments.  A  slight  decline  in  their 
stocks  deposited  was  at  once  made  good  by  additional  se- 
curities. The  auditor's  report  for  1854  shows  that  the  num- 
ber of  banks  had  increased  to  thirty-three,  two  of  which, 
however,  had  gone  into  liquidation  solvent;  and  one,  having 
failed  to  redeem  its  notes,  had  been  placed  in  the  hands  of  a 
receiver  and  its  securities  advertised.  The  securities  de- 
posited at  this  time  were  all  at  par  except  those  of  Ca1ifornia, 
which  were  rated  at  80  per  cent.,  and  those  of  Illinois,  the 
highest  of  which  were  rated  at  fifty  per  cent.  The  total 
amount  of  the  stocks  deposited  was  $2,651,210,  and  the 
amount  of  circulating  notes  outstanding  was  $2,649,341.* 

The  banks  had  not,  however,  succeeded  in  demonstrat- 
ing their  usefulness  sufficiently  to  win  over  all  their  oppon- 
ents. In  his  message  of  January  3,  1853,  governor  French 
renewed  his  attack  on  them,  protesting  in  the  interests  of  the 
people,  "against  a  mass  of  circulating  trash  in  the  guise  of  a 
paper  currency,  which  is  finding  its  way  into  every  part  of  the 
state."  That  a  well  secured  paper  currency  should  fail  to 
drive  out  worthless  foreign  and  equally  worthless  domestic 
issues  was,  of  course,  the  only  possible  result.  And  the  legis- 
lature attempted  the  equally  vain  expedient  of  trying  to  legis- 
late foreign  irredeemable  paper  out  of  the  state.  An  act, 
commonly  known  as  the  "foreign  small  note  act,"  was  passed 
on  Feb.  10,  1853,  and  went  into  force  on  the  first  of  the  fol- 
lowing August.  It  provided  more  stringent  rules  for  the  in- 
corporation and  regulation  of  banks  within  the  state;  and 
enacted  that  any  person  who  should  issue,  pass  or  receive  a 
note  of  a  denomination  less  than  five  dollars,  to  be  used  as 
money,  other  than  the  notes  of  the  banks  of  this  state,  or 
specie  paying  banks,  lawfully  organized  in  other  states, 
should  be  liable  to  a  fine  of  fifty  dollars  and  imprisonment  for 
one  year.  The  law  was,  however,  everywhere  violated  from 
the  start  and  foreign  notes  continued  to  circulate  as  before. 

*It  will  be  observed  that  the  amounts  of  bank  circulation  securities, 
etc.,  as  taken  from  the  auditor's  reports,  do  not  agree  with  the  amounts 
given  in  the  table  taken  from  the  comptroller's  report  for  1876  and  inserted 
on  pages  55  and  56.  Presumably  the  auditor's  figures  are  the  more  ac- 
curate. 


48 

Manifestly  if  unlawful  currency  already  circulated  and  unlaw- 
ful banking  was  being  carried  on,  they  could  not  be  pre- 
vented by  making  them  more  unlawful.  In  1855  the  bank 
commissioners  recommended  that  banks  be  allowed  to 
charge  ten  per  cent,  interest,  like  private  individuals;  that 
they  be  allowed  to  take  up  their  securities  from  the  auditor 
in  sums  of  $1,000  or  more,  instead  of  being  compelled  to  take 
up  all  but  ten  per  cent.,  as  was  then  the  law;  and  that  the  dis- 
crimination of  twenty  per  cent,  against  Illinois  stocks  de- 
posited as  security  be  removed.  At  this  session  only  the 
recommendation  with  respect  to  taking  up  securities  was 
enacted  into  law. 

The  auditor's  report  for  1856  gives  a  list  of  sixty-one 
banks,  with  a  circulation  of  $6,480,873,  and  securities  with  a 
cash  value  of  $6,663,389.  Of  these  sixty-one  banks,  eleven 
had  been  closed  or  had  gone  into  voluntary  liquidation,  leav- 
ing fifty  in  operation. 

The  panic  of  1857  severely  tried  the  banks.  The  state  of 
the  currency  was  generally  regarded  as  the  root  of  tie 
trouble,  and  to  it  were  ascribed  the  over-trading,  over-im- 
portation, stock  speculation,  etc.*  In  Illinois  especially, 
business  expansion  was  at  its  greatest  tension.  The  period 
from  1851  to  1860  has  never  been  equalled  by  this  state  be- 
fore or  since  in  rapidity  of  growth.  To  this  activity  from 
natural  causes  the  abundant  currency  furnished  by  the  stock 
banks  of  the  different  states  gave  an  unwonted  stimulus. 
In  the  spring  of  1857,  when  signs  of  a  crisis  began  to  be 
manifested,  some  of  the  securities  of  the  Illinois  banks  de- 
clined. On  May  8,  the  bank  commissioners  notified  the 
banks  to  file  additional  securities,  and  all  responded  save 
two.  But  the  securities  continued  to  decline,  and  on  July 
27  another  reuisition  was  made  on  the  banks  to  file,  within 
ninety  days,  additional  security.  The  failure  or  inability  of 
the  banks  to  meet  this  requisition  would  have  thrown  into 
the  market  $4,560,000  worth  of  securities,  $2,738,000  of 
which  were  Missouri  stocks.  In  the  existing  conditions  of 
the  market  this  would  have  depressed  their  value  below  the 
amount  necessary  to  redeem  the  notes  based  on  them,  thereby 
*Sumner's  History  of  American  Currency,  p.  185. 


49 

producing  a  depreciated  currency.  From  fear  of  this  result 
it  was  strongly  urged  that  the  time  limit  of  the  requisition 
should  be  extended,  but  the  bank  commissioners  remained 
firm  and  all  the  banks  but  three  promptly  met  the  call.  Some 
embarrassment  was  caused  later,  in  consequence  of  the  re- 
fusal of  the  St.  Louis  merchants  and  brokers  to  take  Illinois 
currency.  But  one  of  the  bank  commissioners  visited  them, 
explained  the  provisions  of  the  banking  system  for  securing 
notes,  the  value  of  which  at  that  time  depended  largely  on 
the  credit  of  Missouri,  and  induced  them  again  to  accept  Illi- 
nois currency.  The  recovery  from  this  crisis  was  rapid  and 
complete.  Yet  the  trial  to  which  the  banks  had  been  sub- 
jected had  exhibited  their  worthlessness  as  props  to  business, 
though  no  material  losses  resulted  to  the  people  on  their  cir- 
culation. 

In  1857  the  legislature  put  Illinois'  bonds  on  an  equal 
footing  with  those  of  other  states  as  note  securities,  and  all 
were  to  be  valued  at  ten  per  cent,  less  than  their  market 
price;  and  the  legal  rate  of  interest  was  fixed  at  ten  per  cent. 
The  principal  trouble  with  the  circulation,  however,  arose 
from  the  fact  that  banks  were  often  started  in  remote 
places  at  which  alone  their  notes  could  be  presented,  and 
where  they  had  to  be  presented  and  protested  separately; 
and  the  bank  could  cause  unreasonable  delay  in  redemption 
by  counting  out  small  change  for  each  bill  presented.  This 
evil,  also,  the  legislature  of  1857  sought  to  remedy.  The  lo- 
cation of  a  bank  in  a  place  of  less  than  two  hundred  inhabi- 
tants was  forbidden;  the  banks  were  required  to  be  located 
at  the  place  where  their  notes  were  dated;  and  the  notes  were 
made  redeemable  and  could  be  protested  in  packages.  The 
Supreme  Court  of  the  state  declared  these  amendments  consti- 
tutional without  submission  to  the  people.  Yet  the  amend- 
ments failed  to  accomplish  all  the  desired  results,  for  as  late 
as  February,  1861,  the  bank  commissioners  reported:  "The 
business  of  banking  has  gone  in  many  cases  into  the  hands 
of  irresponsible  and  non-resident  persons,  who,  having  no 
object  of  interest  except  to  get  their  notes  into  circulation 
and  leave  the  bill  holders  to  take  care  of  them,  have  located 
their  banks  in  remote  and  inaccesible  places,  where  no  legiti- 


50 

mate  business  can  be  done,  or  is  expected  to  be  done,  and 
thus  the  country  has  become  flooded  with  what  is  known  as 
'wild  cat'  currency." 

In  1858,  fifty-six  banks  were  reported,  nine  of  which  had 
filed  certificates  of  their  intention  to  wind  up  their  business, 
and  two  had  deposited  specie  with  the  auditor  and  withdrawn 
their  securities.  The  falling  off  in  the  number  of  banks  was 
doubtless  due  to  the  panic  of  1857.  The  securities  of  deposit 
amounted  to  $7,057,859.  The  sum  total  of  their  resources 
was  $11,000,000;  their  capital  stock  $4,000,000;  the  amount 
of  notes  in  circulation  $5,000,000;  the  profit  and  loss  account 
about  $1,200;  and  their  surplus  $164,000. 

The  figures  in  the  report  of  the  auditor  for  1860  show 
that  one  hundred  and  ten  banks  were  then  in  operation 
with  a  circulation  of  $12,320,694.  The  following  table*  shows 
their  securities  and  the  cash  value  of  the  same: 

STOCKS  BELOW  PAK. 

Stocks.                            Par  Value.  Market  Value. 

Missouri  6's 13,026,000        At  67^ $2,042,550 

Tennessee  6's 3,321,000        At  72}£ 2,407,725 

VirginiaG's 1,284,000       At  76 975,840 

Louisiana  6's 507,500        At  75 380,625 

North  Carolina  6's 888,000       At  82 728,160 

South  Carolina  6's 100,000       At  20 20,000 

Georgia  6's 335,000       At  80 268,000 

Kentucky  6's 66,000       At  92^ 61,050 

$9,527,500  $6,883,950 

PAR  STOCK. 

$6,883,950 

Ohio  6's $     284,855 

Iowa  6's 91,000 

Michigan  6's 442,000 

Michigan  7's 50,000 

MinnesotaS's 140,000 

New  York  6's.. 282,000 

United  States  5's 19,900 

United  States  6's 827,000 

Illinois  and  Michigan  Canal 531,619 

Illinois  New  Internal  Improvement  Stock 323,238 

Illinois  6's 1,418,000 

Specie . 42,861 

$  4,452,473 


$11,336,423 

In  the  first  half  of  1860  banking  under  the  general  law 
of  1851  reached  its  highest  point.    As  a  system  of  legitimate 
banking  it  was  faulty  and  lax  in  its  provisions,  but  as  a  sys- 
tem for  furnishing  a  safe  circulating  medium  it  was  well 
*Bank  Commissioner's  Report,  Dec.  14, 1858. 


51 

guarded  and  successful.*  During  the  nine  years  in  which 
the  law  had  been  in  operation,  fourteen  banks  had  been 
closed  up,  and  all  their  notes  had  been  redeemed  at  par,  ex- 
cepting in  one  case,  and  in  that  the  discount  had  been  but 
three  per  cent.f  The  year  1861,  however,  brought  new  con- 
ditions. All  the  securities  had  depreciated  and  the  stocks  of 
southern  states  became  almost  worthless. 

The  general  assembly,  on  February  14,  1861,  amended 
the  law  by  requiring-  that  all  securities  thereafter  deposited 
should  be  United  States  or  Illinois  stocks  and  that  upon  the 
depreciation  for  sixty  days  of  any  state  bond,  the  auditor  was 
to  call  upon  the  banks  to  make  up  the  deficiency  within  six 
months.  Springfield  and  Chicago  were  made  centers  of  re- 
demption, interest  damages  on  notes  protested  were  raised 
from  12  1-2  to  20  per  cent.,  and  the  auditor  was  directed  to 
pay  out  proceeds  from  bonds  deposited  pro  rata  -on  notes 
protested  or  notes  of  banks  gone  into  liquidation.  Within  a 
month  the  depreciation  of  the  various  state  stocks  had  be- 
come so  great  that  many  of  the  notes  began  to  pass  from 
hand  to  hand  with  "a  nervous  precipitancy  which  showed  a 
general  distrust  of  their  value."  The  city  banks  tried  to  send 
the  doubtful  bills  out  to  the  country  to  buy  produce,  but  the 
farmers  were  also  distrustful  and  the  bills  were  returned  as 
fast  as  they  could  be  sent  out.  Chicago  brokers  and  later, 
the  railroads,  issued  daily  lists  of  the  notes  they  would  re- 
ceive, made  out  arbitrarily  and  often  rejecting  notes  shown 
by  the  auditor's  reports  to  be  secure.  No  one  could  do  busi- 
ness without  having  one  of  the  lists,  or  bank  note  reporters, 
constantly  with  him.  The  notes  came  to  be  divided  into 
"Illinois  common"  and  "Illinois  preferred,"  of  different 
values,  and  New  York  exchange  soon  rose  to  13  per  cent, 
above  the  preferred.  To  make  matters  worse  large  amounts 
of  the  almost  valueless  currency  of  the  southern  states  was  in 
circulation.  "A  well  known  banker  bought  a  bank  and  en- 
dorsed with  his  own  hand  all  its  notes  as  they  came  to  him. 
An  equally  well  known  editor,  whenever  he  could  get  posses- 

*Moses'  History  of  Illinois,  I.  p.  570. 
tGovernor's  Message,  1861. 


52 

sion  of  one  of  these  notes,  printed  beneath  the  endorsement 
a  picture  of  wild  cats  quarreling    and  reissued  them."* 

A  special  session  of  the  legislature  met  in  April,  and 
various  schemes  for  relief,  one  proposing  that  the  state 
guarantee  the  bills,  were  suggested.  All  failed  of  adoption. 
A  very  elaborate  plan  for  a  new  banking  system,  entitled  "An 
act  providing  for  the  organization  of  a  central  bank  to  be 
called  the  Union  Bank  of  Illinois,  with  as  many  branches  as 
might  be  organized  under  the  charter,"  was  passed  by  the 
legislature  but  rejected  by  the  people.  Many  of  the  banks 
were  unable  to  comply  with  the  commissioners'  demands  for 
additional  securities,  and  by  1862  their  number  had  de- 
creased from  no  to  62,  and  most  of  their  notes  had  been  re- 
deemed by  surrendering  them  for  the  securities.  The  audi- 
tor's report  for  1864  shows  twenty-three  banks  in  operation 
and  ninety-eight  in  suspension.  By  this  time  the  national 
banking  system  had  gone  into  operation  and  the  tax  on  the 
issues  of  state  banks  gradually  extinguished  their  circulation. 
A  law  was  passed  in  1867  permitting  state  banks  to  file  a 
bond  for  their  circulation,  and  receive  their  securities.  An- 
other law  declared  that  any  person  or  persons,  not  incor- 
porated by  law  with  banking  powers,  who  should  issue  notes 
or  bills,  should  be  deemed  a  common  swindler  and  liable  to 
indictment.  It  also  provided  that  no  more  banks  should  be 
incorporated  with  power  to  issue  bills.  This  act  closes  the  his- 
tory of  state  banks  of  issue  in  Illinois. 

State  banks  of  deposit  and  discount  have  been  in  opera- 
tion under  general  laws  since  1851.  By  the  construction  put 
upon  the  constitution  of  1848,  these  laws  did  not  need  to 
be  submitted  to  the  people.  In  the  constitutional  convention 
of  1869,  it  was  unanimously  agreed  that  while  state  bank 
systems  had  been  fully  tried  and  had  brought  only  disaster, 
it  would  not  be  unwise  to  make  some  provision  for  a  sys- 
tem of  state  banks  which  might  be  used  in  meeting;  con- 
tingencies that  might  occur.  Accordingly  the  following  pro- 
visions were  incorporated  in  the  constitution  and  arc  now 
the,  law : 

"No  state  bank  shall  hereafter  be  created,  nor  shall  the 

*Lymau  J.  Gage's  Banking  in  Illinois,  p.  437. 


53 

state  own  or  be  liable  for  any  stock  in  any  corporation  or 
joint  stock  company  or  association  for  banking  purposes, 
now  created,  or  to  be  hereafter  created.  No  act  of  the  Gen- 
eral Assembly  authorizing  or  creating  corporations  or  asso-  , 
ciations,  with  banking  powers,  whether  of  issue,  deposit,  or 
discount,  nor  amendments  thereto  shall  go  into  effect,  or  in 
any  manner  be  in  force  unless  the  same  shall  be  submitted  to 
a  vote  of  the  people  at  the  general  election  next  succeeding 
the  passage  of  the  same,  and  be  approved  by  a  majority  of 
all  the  votes  cast  at  such  an  election  for  and  against  such  law. 
Every  stockholder  in  a  banking  corporation  or  institution 
shall  be  individually  responsible  and  liable  to  its  creditors 
over  and  above  the  amount  of  stock  by  him  or  her  held,  to 
an  amount  equal  to  his  or  her  respective  shares  so  held  for 
all  its  liabilities  accruing  while  he  or  she  remains  such  stock- 
holder. The  suspension  of  specie  payments  by  banking  in- 
stitutions, on  their  circulation,  created  by  the  laws  of  this 
state,  shall  never  be  permitted  or  sanctioned.  Every  bank- 
ing association  now,  or  which  may  hereafter  be,  organized 
under  the  laws  of  this  state,  shall  make  and  publish  a  full 
and  accurate  quarterly  statement  of  its  affairs  which  shall  be 
certified  to  under  oath,  by  one  or  more  of  its  officers,  as  may 
be  provided  by  law.  If  a  general  banking  law  shall  be 
enacted,  it  shall  provide  for  the  registry  and  countersigning, 
by  an  officer  of  state,  of  all  bills  or  paper  credit,  designed  to 
circulate  as  money  and  require  security  to  the  full  amount 
thereof  to  be  deposited  with  the  state  treasurer,  in  United 
States  or  Illinois  state  stocks  to  be  rated  at  ten  per  cent,  be- 
low their  par  value;  and  in  case  of  a  depreciation  of  said 
stocks  to  the  amount  of  ten  per  cent,  below  par  the  bank  or 
banks  owning  said  stocks  shall  be  required  to  make  up  said 
deficiency  by  depositing  additional  stocks.  And  said  law  shall 
also  provide  for  the  recording  of  the  names  of  all  stockhold- 
ers in  such  corporation,  the  amount  of  stock  held  by  each  at 
the  time  of  any;  transfer  thereof,  and  to  whom  such  transfer 
is  made/' 

Amendatory  acts  of  the  law  for  state  banks  were  passed 
in  1879,  and  in  1887;  and  at  the  latter  date,  also  an  act,  en- 
titled "an  act  providing  for  a  state  bank  system"  was  passed 


54 

by  the  legislature  and  ratified  by  the  people,  and,  as  amended 
in  1889,  is  now  the  law. 

With  these  banks  of  deposit  and  discount  merely  and 
with  private  banks  this  history  is  not  concerned.  "They  are 
important  factors  in  the  banking  interests  of  this  state,  how- 
ever, for  it  is  estimated  that  there  are  in  Illinois  today  at  least 
five  hundred  banks  of  deposit  and  discount,  either  existing 
under  such  private  charters  or  unincorporated,  and  a  capi- 
tal of  at  least  $13,000,000  engaged  in  banking  through  the 
medium  of  such  incorporations  and  of  private  banking 
houses.  These  estimates  are  but  roughly  made  as  accurate 
statistics  cannot  be  had."* 

*Lyman  J.  Gage's  Banking  in  Illinois,  p.  433. 


:        55 


STATISTICS  OF  STATE*  BANKS  IN  ILLINOIS  FOR  VARIOUS 
YEARS.     PRINCIPAL  LIABILITIES. 


YEARS. 

CAPITAL  STOCK. 

CIRCULATION. 

DUE  TO  BANKS. 

OTHER 
LIABILITIES. 

1835  

$    278,739 

$    178,810 

$       5,739 

$    200,000 

1836   

478,220 

653,661 

13,175 

200,000 

1837  

2,041,760 

1,565,373 

37,342 

1,681 

1838 

4,673,050 

1,990,993 

348,995 

188,836 

1839 

5,435,055 

3,729,513 

533,494 

1840 

5,423,185 

3,724,092 

230,707 

24,891 

1841 

5,386  765 

4,367,829 

149  104 

1843    

5,016,640 

2,212,127 

17,550 

1845 

2,713,640 

1,183,256 

2,219 

23,000 

1853 

1,702,456 

1,351,788 

315,441 

14,116 

1854  

2,513,790 

2,283,526 

294,034 

1856  

3,840,946 

3,420,985 

241,903 

1857  

5,872,144 

5,534,945 

210,483 

157,981 

1858    
1859 

4,679,325 
4,000,334 

5,238,930 
5,707,048 

19,662 
15,621 

131,764 
525,344 

1860 

5,251,225 

8,981,723 

26,533 

552,338 

1861   

6,750,743 

11,010,837 

64,200 

422,220 

1862  

1,415,076 

1863  

894,845 

619,286 

110,739 

42,112 

PRINCIPAL  RESOURCES. 


en 

fe 

M 

Y~ 

0  «  M 

M- 

en 

* 

LOANS 

UUK 

REAL 

ca  W  M 

01 

fj  0 

OTHER 

4 

< 

AND  DIS- 

STOCKS. 

OTHER 

ESTATE. 

M  W  fc 

wg 

SPECIE. 

RE- 

W 

6 

COUNTS. 

BANKS. 

g°« 

£fc 

SOURCES. 

1835 

2 

$   313,902 

1 

$   209,396  $       4,671 

$  20,150 

$243,223 

* 

1836 

1 

1,203,763 

55,689 

8,296 

69,983 

279,670 

4,465 

1837 

8 

3,098,751 

620,790 

14,179 

268,653 

590,794 

11,070 

1838 

8 

4,416,577 

2,690,000 

234,145 

27,533 

70,718 

684,487 

4,944 

1839 

8 

6,046,615 

3,363,750 

701,290 

57,138 

331,860 

989,172 

103,136 

1840 

9 

5,930,256 

2,544,750 

759,537 

108,994 

199,381 

756,964 

175,170 

1841 

15 

5,454,938 

2,128,629 

1,105,817 

534,421 

193,124 

942,895 

1843 

14 

3,668,167 

2,085,552 

72,165 

1,243,327 

24.784 

798,998 

1845 

15 

2,286,902 

424,326 

30,363 

1,191,505 

11,836 

78,697 

1853 

23 

586,404 

1,780,617 

880,541 

13,202 

233,576 

419,531 

1854 

29 

316,841 

2,671,903 

878,612 

31,158 

385,339 

63,892 

565,152 

1,368,203 

1856 

36 

337,675 

3,777,676 

2,354,571 

79,940 

517,066 

37,165 

759,474 

1,108,148 

1857 

42 

1,740,671 

6,120,613 

3,952,450 

52,832 

433,717 

19,297 

635,810 

1858 

45 

1,146,770 

6,164,017 

2,813,578 

59,567 

265,034 

6,433 

233,239 

4,757 

1859 

48 

1,296,616 

6,486,652 

2,627,690 

87,769 

271,526 

9,272 

269,585 

1,837 

1860 

74 

387,229 

9,826,691 

3,201,416 

92,429 

343,269 

39,397 

223,812 

1,679,277 

1861 

94 

546,876 

12,264,580 

3?793,753 

116,551 

287,311 

37,920 

302,905 

2,035,736 

1862 

19 

1863 

25 

221,380 

501,947 

110,151 

206,231 

109,295 

55,793 

104,018 

425,460 

Report  Compt.  Curr.,  1876,  p.  118. 


f*   H 
1$^7!$ 

in  Illinois 


<SITY 


239379 


